Case Law

British funder to give costs indemnity up to $1M before certification, and $5M after certification.

Recovery of 7.5% if recovery before certification, 10% after certification (after fees and disbursements).

Plaintiffs not prepared to proceed without a contingency fee agreement and protection from a costs award. Counsel would not indemnify for costs, and Class Proceedings Fund turned them down.

Defendants did not oppose as long as funder posted security for costs.

Need for indemnity arose because of Ontario’s decision not to adopt a no-costs regime: “against the recommendation of the Commission. . . the Legislature rejected a no-costs regime for Ontario.” (para. 23). Instead created the Class Proceedings Fund.

“Indeed, it became the conventional wisdom that Class Counsel, who have far more to gain from a class action than the individual class members or the representative plaintiff, would be negligent or unethical if they allowed their client, the representative plaintiff, to assume a potentially catastrophic financial risk.” (para. 30)

“The new alternative is funding from a third party funder, and the current state of affairs in that courts in Ontario have come to accept and have approved the use of third party funders. Third party funding of class proceedings is permitted in Ontario as an appropriate manner of allowing plaintiffs and class counsel to mitigate the substantial litigation risks in class proceedings.” (para. 34)

Court approved agreement and set out number of principles governing LFAs. Court did not specify if they were intended to apply outside class action proceeding.

In June 2015, Justice Perell approved a settlement agreement. 

Irish funder to provide costs indemnity and $50K disbursements in exchange for 5% before pretrial ($5M cap) and 7% after pretrial ($10M cap).

Plaintiffs gave notice to defendants and to 20 of the largest institutional investors/ members. No opposition.

Agreement included an obligation on Class Counsel to inform funder about any significant issue in the action including prospects, strategy, quantum, proof and material changes. CFI acknowledges that the Plaintiffs provide the instruction to the lawyers and that the lawyers’ professional duties are owed to the Plaintiffs and not CFI.

“It is a fair and reasonable agreement that facilitates access to justice while protecting the interests of the Defendants. The Defendants have the comfort that money for their legal costs has been paid into court” (para. 15).

“In the circumstances of this case, the third party funding agreement is preferable to the alternative of funding from the Class Proceedings Fund. The commission is less than the 10% uncapped levy that would be extracted by the Fund.”

Class action was certified.  Some defendants have settled, case against non-settling defendants continues. 

Plaintiffs’ firm willing to act on contingency if court approved adverse costs agreement with funder. Plaintiffs not willing to disclose details of funding agreement.

“[I]n determining whether to approve a third party agreement, it will be necessary to consider the particularities of the funding agreement . . . in my opinion, disclosure of the type and details of the third party funding to the defendant is in the interests of the administration of justice and disclosure to the defendant may help fill an adversarial void in the process of approving or refusing third party funding agreements” (para. 77)

“a third party funding agreement 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 in order to ensure that there are no abuses or interference with the administration of justice” (para. 89).

Third party funding agreement is not privileged, or if it is, that privilege is waived. Agreement would only be approved after agreement is disclosed, and by motion on notice to the defendant.

Case did not proceed as plaintiffs did not disclose agreement to defendants.

Irish funder would indemnify against costs and pay $50,000 towards disbursements, in exchange for 7% of recovery (after deduction of fees and expenses).

$5M cap before filing pre-trial brief and $10M afterwards.

Court approved a funding agreement between the representative plaintiffs and funder. No reasons were given.

Court approved a funding agreement between the representative plaintiffs and a funder on an ex parte basis. No reasons were given.

Irish funder to give adverse costs indemnity in exchange for 7% after legal fees and disbursements.

No cap on recovery to funder.

Defendants were “affected” by the agreement, and entitled to notice of motion and to make submissions on it (para. 3).

“The ability to terminate the Agreement without cause should [] be deleted with the result that [the funder] may only terminate its obligations if the plaintiff fails to fulfil its obligations under the Agreement or appoints different lawyers to replace the present lawyers as the Agreement now provides” (para. 60).

“This plaintiff is not impecunious and may well have the means to pursue litigation. However, I do not find it improper that it seeks to reduce the risks which a class proceeding exposes them to” (para. 67).

Could not determine if the agreement was champertous at this stage, because do not yet know if the fees received will be fair and reasonable. . . funder might be “overcompensated” (para 70-72).

Because Court could not assess whether compensation was fair and reasonable, without knowing what that compensation would be, would not approve funding agreement in advance. Agreement therefore not approved.

Action settled in 2011.

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.