Houle v. St Jude

This case is the next stage in the evolution of Canadian jurisprudence relating to the third-party litigation funding in class actions. Previous cases considered litigation funding for disbursements and adverse costs orders alone. In Houle, the Ontario Superior Court provided guidance on a Litigation Funding Agreement where Bentham agreed to pay a portion of lawyers’ fees as the case progresses, in addition to agreed disbursements and any court-ordered costs.
Justice Perell commented 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” [para. 79].
He then set out a six-part test for assessing an LFA: (a) can a court scrutinize the LFA [para. 73]; (b) is third-party funding necessary in the case [75]; (c) will the funder make a meaningful contribution to access to justice or behaviour modification [78]; (d) will the funder be overcompensated for its risks in the case [80]; (e) is the lawyer-client relationship protected from interference [88]; and (f) is the LFA not illegal under some other grounds, independent of champerty and maintenance [100].
The Court concluded that the LFA met all criteria except for (d) and (e).
In regards to (d), overcompensation, Justice Perell concluded that the appropriate level of compensation for Bentham can be determined only at the end of the litigation [87]. In other words, Bentham cannot know if it is entitled to its full contractual rate of return for its investment in the litigation until after the case is over. The Court was willing to pre-approve only a 10% return, by analogy to the Class Proceedings Fund’s rate of return,  with any further return to the funder to be assessed at the conclusion of the case.

In regards to (e), interference, Justice Perell expressed concern that Bentham’s termination rights under the LFA might interfere with the plaintiffs’ litigation autonomy [89]. Specifically, the Court held that Bentham should have no right to terminate the LFA if the case is no longer meritorious, and should be able to terminate the LFA in other specific circumstances only upon court approval [98].
The Divisional Court granted leave to appeal, and in October 2018, upheld the motion Judge’s decision.