Judicial Scrutiny of Third Party Litigation Funding Agreements in Canadian Class Actions

• Author: Matt Malone
• Pages: 191-225

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JUDICIAL SCRUTINY OF THIRD

PARTY LITIG ATION FUNDING

AGREEMENTS IN CANADIAN

CL A SS ACTIONS

Matt Malone

Abstract: The emergence of third party l itigation funding

agreements — contracts by third part ies funding litigation in

which they have no direct st ake or claim, usually in exchange

for a percentage of the recovery — has animated vigorous de-

bate about some of the most fundamental i ssues in the legal

system. Some observers have pegged renewed hope on these

agreements to increa se access to the court s, economize ju-

dicial resources, and punish wrongdoers, while others voice

concern over their potentia l to result in undue manipulation of

litigation, frivolous lawsuit s, subordination of control to rapa-

cious investors, commodif‌icat ion of claims, and other negative

social consequences. As these debates rage, the phenomenon

has been left to judges to reg ulate. This paper examines rece nt

trends in th ird party litigation funding of cl ass proceedings in

Canada and an alyzes the effort s by Canadian judges to bring

scrutiny to such fu nding arrangements. The paper argues t hat

these efforts generally succeed in balancing the concerns of

proponents and opponents of such agreements.

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JUDICIAL SCRUTINY OF THIRD PARTY

LITIGATION FUNDING AGR EEMENTS

IN CANADIA N CLASS ACTIONS

Matt Malone*

A. INTRODUCTION: WHAT ARE THIRD PARTIES

DOING IN CLASS PROCEEDINGS?1

“It is early days for third party funding motions,” writes Paul Perell J in

Fehr v Sun Life (2012), a judgment on a motion for approval of a third

party litigation funding ag reement, “and at present time, there is little ex-

perience to guide how the procedure should be shaped.”2 The emergence

of third part y litigation funding agreements — contracts by third partie s

funding litigation in which they have no direct stake or claim, usually in

exchange for a percentage of the recovery — h as animated vigorous debate

about some of the most fundamental i ssues in the legal system. These

arrangements off‌load t he f‌inancial burden of paying for litigation to a

professional third party funder. Currently, in most class proceedings,

this off‌loading occurs through contingency fee structures, where the f‌i-

nancia l risks are borne direct ly by f‌irms and lawyers. Third pa rty funding

agreements, however, alter this setup by allocating the f‌inancial risk to

a party with no involvement in the case beyond one that is purely f‌inan-

cial. This paper ex amines these recent trends — it probes the efforts by

judges to bring scrut iny to such arrangements, and analy zes whether these

efforts effectively balance competing interests and concerns. Ultimately, it

* Matt Malone is a rece nt graduate from the BCL and LL B program at McGill

University’s Facu lty of Law. He holds an MA from the Hebrew Univers ity of

Jerusalem a nd a BA from the University of Toronto.

1 This paper prof‌ited f rom discussions wit h Professor Richard E Gold, Simon

Seida, Dave Thompson, Pau l Migicovsky, and Michael Grossman . I am grateful

to Harvey St rosberg and Lesley Steeve for their a dministration of the H arvey T

Strosberg Es say Prize. Finall y, this paper wa s also enriched by the comm ents

of anonymous judges of t hat contest and the reviewers of t he Canadian Class

Action Review.

2 Fehr v Sun Life Assurance Company of Canada , 2012 ONSC 2715 at para 163 [Fehr].

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