Case Law

In this case, Seedlings brought an action to enforce a patent against an Pfizer, international pharmaceutical company.  Seedlings entered into an Litigation Funding Agreement (LFA) with Bentham.  Under the LFA, Bentham agrees to pay a portion of Seedlings’ legal fees and disbursements on a non-recourse basis.  If the case is unsuccessful, Seedlings loses nothing, and Bentham will pay any court-ordered costs.  If the case is successful, Seedlings, its counsel and Bentham will each receive a return.  Seedlings and Bentham brought a motion, on notice to the defendant, for approval of their LFA by the Federal Court.
 
The Approval Motion was dismissed, without costs, on the basis that the Federal Court did not have jurisdiction to grant such a remedy or make such a determination [7].  Case Management Judge Tabib reasoned that, unlike in class actions where courts must help protect vulnerable class members, “the legal, procedural and policy imperatives … of submitting LFAs to prior court approval … do not exist in the context of private litigation. There is no legal or logical basis to extend the requirement of pre-approval outside of class proceedings” [16].
 
The Court noted that “the manner in which Seedlings chooses to fund a litigation it has every right to bring is of no concern to the Court or to the Defendant. … The Defendant has no legitimate interest in enquiring into the reasonability, legality or validity of Seedlings’ [funding] arrangements … because they do not affect or determine the validity of the rights asserted by Seedlings in this action” [22-23].  Indeed, by opposing the LFA as “aggressively” as it did, “Pfizer’s conduct was not at all helpful to the determination of the issues before the Court … [and its] conduct should not be recompensed with an award of costs” [35].
 
The Court further found that the LFA need not be approved in order for Bentham to be bound by the implied undertaking rule. That is, a third-party funder is entitled to receive information from the discovery of a defendant, as any related third party would be (e.g. “experts, potential witnesses, consultants or others whose advice is relevant to the carriage of the litigation”), without special approval from the court. Such disclosure by a plaintiff to the funder is “neither improper nor alien, collateral or ulterior to the litigation”—as long as the funder agrees to abide by the implied undertaking rule [32-33].

This was a preliminary motion on the same facts as the Seedlings case noted above. In advance of the LFA approval motion, the defendant, Pfizer, was provided with a redacted version of the LFA (the Court had an unredacted version).  Pfizer filed a motion for an unredacted copy.
 
Case Management Judge Tabib dismissed Pfizer’s motion, with costs. The Court found that litigation privilege attaches to the LFA, as it “was prepared and created for the sole purpose of the present litigation” [p. 2]. It was proper for portions relating to details of Bentham’s funding commitment and timing variables to be withheld from the defendant. Otherwise, Pfizer would get “a tactical advantage in how the litigation would be prosecuted or settled, and the very essence of what the litigation privilege is designed to protect” [p. 4].

Single plaintiff of modest means wished to pursue contract claim against well-funded defendant. British funder to cover legal fees and disbursements in exchange for escalating return.

First time Court considered funding in a single-party commercial action: “I see no reason why such funding would be inappropriate in the field of commercial litigation” (para. 8).

Up to 50% return for the funder was acceptable: “In my view, it would be reasonable to allow a funder a recovery of approximately 50 percent in certain circumstances. This case would, to my mind, fit within that category, since it involves a plaintiff of modest means seeking to pursue significant litigation against corporate defendants involving complicated subject matter and very significant damages being claimed” (para. 17).

Court was concerned about open-ended nature of funder’s recovery, which allowed an additional 5% of the litigation proceeds for every 10% that counsel exceeded the litigation budget: “I cannot, however, countenance the terms of the LFA that provide for a significant recovery for Redress, with an open-ended exposure to Schenk that could result in Redress retaining the lion’s share of any proceeds” (para. 17).

Court concluded that this agreement constituted maintenance and champerty, but it was without prejudice to plaintiff’s ability to renegotiate the terms and return for approval. Funder and plaintiff revised the agreement, and it was subsequently approved.

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.