Defendants Sidelined in Third Party Funding Motion
Justice Perell’s July 7, 2016 decision in Berg v. Canadian Hockey League is the most recent development in the evolving law surrounding the role of third party funders in Canadian class proceedings, and in particular the role of defendants in motions for approval of third party funding arrangements. We have previously written about third party funding motions as a developing procedural battle ground in class proceedings.
In Berg, the proposed representative plaintiff brought a motion without notice to the defendants for approval of a third party funding agreement. The plaintiff also sought an order sealing the court file to prevent the defendants from accessing the third party funding agreement.
In his earlier decisions in Fehr v. Sun Life Assurance Company of Canada and Bayens v. Kinross Gold Corporation, Justice Perell considered the involvement of defendants in third party funding approval motions. He determined that defendants are affected by third party funding motions, and as a policy matter, their participation is useful to the court and should be permitted.
Uniquely complicated third party funding agreement raises concerns for the Court
In Berg, Justice Perell identified “several unique features” of the proposed third party funding agreement, including an “extraordinarily complicated” combination of fees, contingency fees and interest payments which raised a number of concerns for the court. A primary concern for the court was that Mr. Berg needed to receive independent legal advice regarding the third party funding agreement and the relationship between that agreement and the contingency fee arrangement with class counsel. His Honour was concerned that it was not appropriate to rely on defendants to identify problems with a third party funding agreement or to make the case against the probity of such agreements. Justice Perell had also determined that disclosure of the proposed funding arrangement to the defendants would provide them with tactical advantages in the litigation, and was concerned that if the court ultimately did not approve the arrangement, there was no need to have the agreements and other sensitive materials disclosed to the defendants.
A sequential approach to third party funding motions
As a result of these concerns, Justice Perell modified the approach taken in previous third party funding motions and in particular with respect to the entitlement of defendants to participate in such motions. He adopted a “sequential approach” that did not involve the defendants at the outset, and adjourned the motion pending Mr. Berg’s receipt of independent legal advice and an independent legal opinion to be provided to the court (at the expense of class counsel) as to the legality of the proposed third party funding agreement. Justice Perell concluded that the involvement of defendants may or may not be required depending on how the request for court approval (and specifically the independent legal advice) progresses. Additionally, His Honour sealed the motion materials pending further order of the court, and noted that courts in other provinces have sealed the file because disclosure of the funding agreement could prejudice the plaintiff by providing the defendant with tactical advantages or disclosing sensitive information.
Implications for defendants
It remains to be seen whether the court’s decision in Berg is an anomaly as a result of unique factual circumstances and an extraordinarily complex proposed third funding fee arrangement. However, the approach taken by the court in Berg, if followed in future third party funding motions, would arguably be a retreat from the principles and approach previously endorsed by the court with respect to the entitlement of defendants to fully participate in and receive disclosure in third party funding motions.