Third-party litigation funding: Another way to provide access to justice | Oksana Romanov

Law360 Canada (July 21, 2023, 2:08 PM EDT) --

Oksana Romanov

During the last semester of law school, I had an opportunity to take several electives, including class actions. This course focused on access to justice, one of the three goals of class proceedings, in addition to behaviour modification and judicial economy. For my final project, I looked at the third-party litigation funding agreements (TPLFAs) as a way of financing class actions in Ontario, including what constitutes a “fair and reasonable” TPLFA, which is outside the scope of this article.

What is access to justice?

The Supreme Court of Canada (the court) defined access to justice in Dutton, Hollick, and Fischer (see Western Canadian Shopping Centres Inc. v. Dutton, [2001] 2 S.C.R. 534 [Dutton] at paras. 3-9 and 27-29, Hollick v. Toronto (City), [2001] 3 S.C.R. 158 [Hollick] at paras. 15 and 27, and AIC Limited v. Fischer, [2013] 3 S.C.R. 949 [Fischer] at paras. 5-6, 15 and 24). In Dutton, an investment funds mismanagement class action, then-Chief Justice Beverley McLachlin recognized that “class actions improve access to justice by making economical the prosecution of claims that would otherwise be too costly to prosecute individually” (para. 28).

Further, addressing litigation costs ensures access to remedies for the plaintiffs. The court echoed a similar definition in Hollick, highlighting the need to address the cost of litigation “by distributing fixed litigation costs amongst a large number of class members” (para. 15). In Fischer, a market-timing-based investor fraud class action, the court stated that access to justice has “interconnected” procedural and substantive components necessary to ensure just and equitable compensation for class members.

Overcoming economic barriers

Regardless of the definition one chooses, “[a]ccess to justice, even in the very area that was specifically designed to achieve this goal, is becoming too expensive” (Rosen v. BMO Nesbitt Burns Inc., [2013] O.J. No. 5089 at para. 1). Typically, litigants face two issues: the economic viability of their claims and overcoming economic barriers to bringing such lawsuits despite their legal rights and the merits of their claims.

Given these economic considerations, legal scholars, lawyers and litigants alike have called for further normalization of third-party litigation funding agreements. As some commentators observe, “[t]hird party funders make important contributions to access to justice by investing in class actions that may not otherwise have the funding to proceed” (Jacqueline M. Palef, “The Death of Champerty: Is Third Party Litigation Funding the New Normal in Class Actions?” (2020) 16:1 The Canadian Class Action Review 77–103 at 77). This type of funding has become a necessary instrument (Ranjan K. Agarwal and Doug Fenton, “Beyond Access to Justice: Litigation Funding Agreements outside the Class Actions Context” (2017) 59:1 Can Bus LJ 65 at 74 [Agarwal and Fenton]) for “levelling the playing field” (Camille Cameron and Jasminka Kalajdzic, “Commercial Litigation Funding: Ethical, Regulatory and Comparative Perspectives” (2014) 55:1 Can Bus LJ 1).

General third-party litigation funding principles

In 9354-9186 Québec inc v. Callidus Capital Corp., [2020] S.C.J. No. 100 (9354-9186 Québec Inc.), an insolvency proceeding, the Supreme Court of Canada established general third-party litigation funding principles. On behalf of the court, Chief Justice Richard Wagner and Justice Michael Moldaver held that “third party litigation funding agreements may be approved as interim financing in CCAA proceedings when the supervising judge determines that doing so would be fair and appropriate, having regard to all the circumstances and the objectives of the Act” (para. 97) and interests of all parties (paras. 105-116). The principles mentioned in 9354-9186 Québec Inc. also apply to class actions. As a result, TPLFAs help remove barriers to access to justice in the context of class action proceedings.

Third-party litigation funding

Some commentators define third-party litigation funding as a contractual arrangement between a representative plaintiff and an outside party (Victoria Sahani, “Reshaping Third-Party Funding,” Washington and Lee University School of Law, Tulane Law Review, 2016, at 392). In exchange for a fee or a share of the recovery, a dispute funder may cover the following costs: lawyers’ fees, expert witness fees, disbursements, court-ordered costs, security for costs and other costs. Additionally, TPLFAs can cover legal representation of either the plaintiffs or the defendants (Agarwal and Fenton, 2017) without a counterclaim (Geoff Moysa, “Litigation Funding: Overview, Practical Law Canada Practice Note Overview w-021-3651” (Practical Law Canada Corporate and Commercial Litigation, 2022) at 17).

TPLFAs are moving away from a single-case approach to distributing the investment risk across multiple actions. Hence, TPLFAs are becoming more complex, reflecting a menu of solutions, including working capital.

Finally, in Metzler, Dugal, Fehr, Sino-Forest, Kinross and General Motors (see Metzler Investment GMBH v. Gildan Activewear Inc., [2009] O.J. No. 3315, Dugal v. Manulife Financial Corp., 105 O.R. (3d) 364, Fehr v. Sun Life Assurance Co. of Canada, [2012] O.J. No. 2029, Smith v. Sino-Forest Corp., [2012] O.J. No. 88, Musicians’ Pension Fund of Canada (Trustees of) v. Kinross Gold Corp., [2013] O.J. No. 3669 and Marriott v. General Motors of Canada Co., [2018] O.J. No. 2133), the courts held that litigation funding is not champerty per se, considering the specific terms of an agreement. These decisions confirmed that TPLFAs can provide access to justice. Furthermore, it is unnecessary for a plaintiff to be impecunious to seek this litigation funding. Finally, third-party litigation funding also ensures cost award certainty.

Normalizing funding agreements in Ontario 

The Law Commission of Ontario authored the “Class Actions Final Report” (the final report) in 2019. The final report made a recommendation to permit third-party funding under certain circumstances. Notably, third-party litigation funding was framed as a risk reduction tool “[w]here a private funder […] indemnifies the representative plaintiff against costs and provides assistance to counsel for disbursements” (p. 75).

After considering these recommendations, the Ontario government developed a regulatory response through Bill 161, Smarter and Stronger Justice Act, 2020. Specifically, s. 33.1, third-party funding agreements, was added to the Class Proceedings Act, 1992 (CPA). This new section of the CPA further normalized third-party litigation funding as a way for representative plaintiffs and their class counsel to finance class proceedings in Ontario.

Oksana Romanov is an LSO lawyer licensing candidate. She holds a J.D. with distinction (2023) from the Lincoln Alexander School of Law at Toronto Metropolitan University. Oksana is the past Ontario Bar Association student section executive and Lincoln Alexander Law’s ambassador (2022-2023). To learn more about the author, you can visit her LinkedIn profile.

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