Defendant access to third-party funding agreements in Canadian class actions

We have written previously about the arrival of third-party funding agreements in class action litigation in Canada [here and here]. As part of that evolving trend, we recently considered Justice Perell’s 2016 decision in Berg v Canadian Hockey League, which addressed – among other things – the role of defendants in motions for court approval of third-party funding arrangements. In this blog post, we consider two subsequent decisions: (i) Marriott v General Motors of Canada Company; and, (ii) David v Loblaw. Both cases affirm that while defendants in Ontario are entitled to participate in third-party funding approval motions, they may not be entitled to disclosure of the complete terms of the underlying funding agreement, particularly certain financial terms that could affect the tactics of the defendants. Rather, the courts have held that it is appropriate for plaintiffs to provide a redacted copy of the funding agreement to the defendants, so long as it provides an unredacted copy to the court.

Background

In Berg, the proposed representative plaintiff brought a motion for approval of a third-party funding agreement and for an order sealing the court file. While Justice Perell affirmed that the defendants were entitled to participate in the motion, he also ordered that the motion record be sealed, such that the defendants would not be entitled to disclosure of the terms of the funding agreement. Justice Perell found that if the defendants were fully informed of the terms of the agreement, it would give them certain tactical advantages in the litigation.

As we previously wrote, it remained to be seen whether the court’s decision in Berg was an anomaly as a result of unique factual circumstances and an extremely complex third-party funding agreement. The Ontario courts have now had an opportunity to revisit the issue in both Marriott and David.

Marriott v General Motors Company of Canada

In Marriott, Justice Glustein approved a third-party funding agreement, under which the third-party funder (CFI) agreed to pay certain disbursements and any adverse costs orders in relation to the action. The defendants in Marriott were provided with a copy of the funding agreement, with disbursement amounts redacted. Justice Glustein noted that he had reviewed the unredacted agreement, and – following Berg – accepted that the redactions were appropriate to avoid any tactical advantages to the defendants. Ultimately, the defendants did not oppose the relief sought on the motion.

David v Loblaw

In David, Justice Morgan approved a funding agreement where the third-party funder (Bentham) agreed to: (i) pay disbursements incurred by class counsel up to a prescribed maximum; (ii) pay any court ordered costs on behalf of the plaintiffs up to a prescribed maximum; and, (iii) provide an undertaking to pay security for costs of one or more defendants. The terms of the funding agreement had been disclosed to the defendants with limited redactions, and fully disclosed to the court.

The defendants raised one core objection on the approval motion; specifically, they objected to Bentham’s undertaking as a means of satisfying a security for costs order, and noted that the cap on Bentham’s funding obligation had been redacted, such that the defendants did not know whether any undertaking given by Bentham would be sufficient.

Justice Morgan rejected this argument. While he acknowledged that a defendant may be able to raise a valid concern of this sort in future cases, the court had reviewed the unredacted version of the agreement and was satisfied that Bentham’s obligation to fund the litigation was sufficient to cover any likely costs award.

Disclosure of third-party funding agreements

Marriott and David demonstrate that the Ontario courts remain willing to approve funding agreements in class proceedings. While defendants will generally be able to participate in third-party funding approval motions, the courts will not necessarily require a plaintiff to disclose all aspects of a funding agreement to the defendants. That said, in recent decisions, the courts have not gone as far as Berg and allowed the sealing of entire funding agreements; rather, they have allowed plaintiffs to make selective redactions of limited portions of the agreement. The courts have reasoned that through this approach, defendants may participate in third-party funding approval motions and make submissions on the key aspects of a proposed funding agreement, while preventing disclosure of information that might confer on the defendants a “tactical advantage” in the litigation. However, this approach continues to raise fundamental questions of fairness. First, given that the third-party funders are becoming more involved in class proceedings, there is a case to be made that their financial arrangements should be open and transparent. Second, where the proposed agreement purports to cap or limit a defendant’s rights at an early stage of the proceeding (such as a right to seek security for costs), there is a compelling case that a defendant ought to have access to that information. It remains to be seen as to how the courts will ultimately balance these concerns, but it appears clear that third-party funding agreements are now a permanent feature of our class proceedings landscape in Canada. 

 

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Editors

Deborah Glendinning

Partner, Litigation

Sonia Bjorkquist

Partner, National Chair, Litigation

Éric Préfontaine

Partner, Litigation

Christopher Naudie

Partner, Litigation

Craig Lockwood

Partner, Litigation

Tristram Mallett

Partner, Litigation

Karin Sachar

Associate, Litigation