The Ontario Superior Court of Justice (EM Morgan J.) was asked to approve a funding agreement to allow Tim Hortons franchisees to continue their litigation against their franchisor for alleged misappropriation of advertising funds. An alliance of franchisees
had provided financial support to the Plaintiffs but they were no longer able to continue this financial support.
The Plaintiffs therefore entered into a funding arrangement whereby the litigation funder paid all fees and disbursements on a pay-as-you-go, non-recourse basis. Counsel would also receive a small top-up of 2% to 3%, to be determined at the end of the
action. The funder was to receive between 22% and 26% of the litigation proceeds. This was the first decision in Canada where a Court was asked to approve a funding arrangement whereby the funder paid all of class counsel’s fees, in addition
to paying disbursements and providing an adverse costs indemnity.
The Court recognized that third-party funding would "ensure that the Plaintiffs and the putative class of franchisees are able to achieve access to justice" and deter wrongdoing (para. 12). Relying on Houle v. St. Jude Medical Inc., 2017 ONSC 5129, aff’d 2018 ONSC 6352 (Div.
Ct.), the Court held that the funding agreement "protect[ed] the financial and human capital of class counsel while seeing to it that the Plaintiffs and class have adequately resourced legal representation" (para. 13). The Court was reassured by the
fact that the agreement could only be terminated with court approval, and that the Plaintiffs received independent legal advice regarding the agreement and budget from experienced class action lawyers (para. 4). Because the combined amounts to which
the third-party funder and Plaintiffs’ counsel would be entitled came to a maximum of 29%, which is within the range of "presumptive validity" for contingency fees recognized in previous cases, the Court was comfortable approving the agreement
at the outset, subject to being able to control the fairness of the ultimate recovery when a settlement is approved or a final award is rendered. The Court was convinced by class counsel’s submission that using a third-party funder would result
in a greater recovery to the class than if class counsel had entered into a typical 33%-plus contingency fee arrangement (para. 26). Given the structure of the funding agreement, the Court also mentioned that it was not comparable with the Class Proceedings
Fund arrangement and its 10% return (para. 24).
Ultimately, the Court approved a settlement agreement pursuant to which class members recovered overall value of $37,396,000 (through cash and non-monetary items). Turning to the approval of the funder’s and class counsel’s returns, the Court
noted that the funder had incurred over $1 million in charges since signing the LFA, had undertaken “a substantial risk in assuming liability for any adverse costs awards”, and had been “instrumental in the class achieving the settlement”
(para. 17). The Court noted that the return sought by the funder and class counsel was less than what they were entitled to seek: the funder sought approval of a payment in the amount of $3,622,641.51, or 24% of the $12,000,000 cash payment, and class
counsel sought approval of a payment in the amount of $377,358.49, or 2.5% of the $12,000,000 cash payment, plus a marginal 2.9% and 0.3%, respectively, on the $25,396,000 non-monetary settlement. This worked out to a combined return of 33% of the
$12,000,000 cash component alone.