Case Law

9354-9186 Québec Inc. (Bluberi Gaming Technologies) v. Callidus Capital Corp. (Supreme Court of Canada, January and May 2020)

In January 2020, the Supreme Court of Canada unanimously overturned the Quebec Court of Appeal’s decision in this matter, thus reinstating the March 2018 decision of the CCAA Court [see summary below]. Judgment was rendered immediately following the conclusion of oral arguments at the hearing.

The Supreme Court provided its written reasons for judgment in May 2020. Writing on behalf of the Court, Chief Justice Wagner and Justice Moldaver held that the CCAA Court properly exercised its discretion to approve Omni Bridgeway’s LFA after finding it “fair and reasonable”. The LFA was not a plan of arrangement, and did not need to be presented to Bluberi’s creditors for a vote.

The reasons made specific reference to the findings of the judge at first instance, and led the Court to the following conclusions (at paras. 106-107, citations omitted):

  • “that approval of the LFA would assist [Bluberi] in finalizing a plan ‘with a view towards achieving maximum realization’ of its assets; …
  • “that the creditors would not be materially prejudiced by the Litigation Financing Charge … [and] ‘given the particular circumstances of this matter, the only potential recovery lies with the lawsuit that the Debtors will launch’; and
  • “that the [court-appointed] Monitor supported approving the LFA as interim financing.

“In our view, it is apparent that the supervising judge was focussed on the fairness at stake to all parties, the specific objectives of the CCAA [Canada’s insolvency legislation], and the particular circumstances of this case when he approved the LFA as interim financing. We cannot say that he erred in the exercise of his discretion.”

This decision represents a milestone for commercial litigation funding in Canada, particularly in insolvencies and restructurings where lawsuits can be an asset class from which to maximize recovery for creditors. As the Supreme Court acknowledges, litigation can be akin to a “pot of gold” (at para. 111):

“When the ‘pot of gold’ is secure — that is, in the event of any litigation or settlement — the net funds will be distributed to the creditors. Here, if the [claims] generate funds in excess of Bluberi’s total liabilities, the creditors will be paid in full; if there is a shortfall, a plan of arrangement or compromise will determine how the funds are distributed.

9354-9186 Québec Inc. (Bluberi Gaming Technologies) v. Callidus Capital Corp. (Quebec Court of Appeal, February 2019)

An appeal of the CCAA Court's decision in Re Bluberi Gaming Technologies [see summary below] was granted by the Quebec Court of Appeal in February 2019. However, the court agreed to stay (suspend) the effect of its ruling pending an appeal to the Supreme Court of Canada.

Ultimately, the Supreme Court of Canada unanimously overturned the Quebec Court of Appeal’s decision [see summary above].

9354-9186 Québec Inc. (Bluberi Gaming Technologies) v. Callidus Capital Corp. (Quebec Superior Court, March 2018)

Bluberi had been under Companies’ Creditors Arrangement Act (“CCAA”) protection since 2015. As part of its restructuring efforts, it intended to assert a claim against its former lender, alleging that it caused Bluberi’s demise (paras. 60-62). Bluberi lacked the funds to advance that claim and sought funding. Bluberi and Bentham, along with Bluberi’s counsel, entered into a litigation funding agreement (LFA) in January 2018 whereby Bentham agreed, subject to CCAA Court approval, to pay Bluberi’s legal fees and disbursements, in exchange for a portion of any proceeds of the litigation. If the litigation is unsuccessful, Bentham loses its investment and pays any costs orders.

The court-appointed monitor supported the funding arrangement (paras. 63-65), and Bluberi moved for the CCAA Court’s approval of the LFA. The lender brought a cross-motion for permission to call a creditors’ meeting to approve its own plan of arrangement, through which the lender would be released from any liability to Bluberi.

In his decision, Justice Michaud first dismissed the lender’s cross-motion, finding that it constituted an attempt to use the CCAA proceedings for an "improper purpose" and that it would result in a "substantial injustice" to Bluberi (paras. 38-40, 56). He then granted Bluberi’s motion for approval of the LFA. In addition to holding that Bluberi did not need creditor approval to bring its lawsuit and that Bluberi’s CCAA stay of proceedings should be extended (paras. 66-72, 87-91), Justice Michaud held that (paras. 73-86):

  1. The LFA provides funding that is necessary to allow Bluberi to gain access to justice, as its lawsuit represents the "only avenue that can potentially allow for any meaningful recovery for the creditors" (para. 69);
  2. The LFA does not diminish Bluberi’s ability to control its litigation and instruct its counsel;
  3. The LFA does not compromise or impair Bluberi’s lawyer-client relationship or its lawyers’ duties of loyalty and confidentiality;
  4. The LFA provides Bentham, whom the court-appointed monitor calls "a reputable lender with a proven track-record" (para. 64), with compensation that is fair and reasonable;
  5. The LFA protects confidential information;
  6. The LFA provides Bentham with reasonable contractual termination rights; and
  7. The LFA is protected from disclosure to the defendant, who is not entitled to know "how much money Bentham is investing, what its percentage of return is, or how any recovery would be apportioned" (para. 85).