Montgrain v. Banque Nationale du Canada

This Quebec Court of Appeal case considered whether “champerty” is prohibited under Quebec law and whether third parties could participate in litigation where they have an interest in the proceeds of such litigation.

The plaintiff, Pole Lite, sued the defendants in 1980 for breach of contract and its rights under the Civil Code of Quebec. The case was ongoing when Pole Lite went bankrupt in 1991. Few steps were taken in the case until an agreement was reached between Pole Lite’s pre-bankruptcy secured creditor (CIBC) and certain third parties in 1996. CIBC agreed to assign about 80% of net litigation proceeds to them, if they agreed to move the case forward. Those third parties then “aggressively intervened” in the litigation (meaning they were added as parties in their own right). They moved the matter towards trial, which finally took place in 2002.

The trial judge held that the agreement between CIBC and the interveners was void for being “champerty”, and thus in breach of the public order provisions of the Civil Code. On this basis, he dismissed the case.

The Court of Appeal unanimously reversed the trial judge on this point. It held that “champerty” is a concept that is foreign to Quebec law. Furthermore, CIBC, as a secured creditor, was entitled to collect any litigation proceeds in order to recover the debt owed to it by Pole Lite, and CIBC was free to share such litigation proceeds with third parties. Their 1996 agreement was not for the “sale of litigious rights”, as governed by arts. 1782-1784 of the Civil Code, but rather was akin to a contingency agreement, which are permissible in Quebec. Since the 1996 agreement was not contrary to the Civil Code, the trial court was wrong to dismiss the underlying litigation on that basis.