The Ontario Superior Court has set out the criteria for approving third-party funding arrangements in a case where it backed Harbour Litigation Funding’s involvement in a C$1bn (£630m) class action.
The ruling in E Eddy Bayens and others v Kinross Gold Corporation and others, 2013 ONSC 4974 – which noted English case law and may prove of assistance here too – highlighted Harbour’s adherence to the Association of Litigation Funders’ code of conduct, and particularly that it does not interfere with the running of a case.
The case is a securities action being brought by the Musicians’ Pension Fund of Canada, which had been denied funding from Ontario’s Class Proceedings Fund – although the judge said nothing should be read into this.
While historically lawyers in Ontario have themselves indemnified class action clients against adverse costs, the court said the “astronomical size of the adverse costs awards” in such cases has “substantially intensified the risk and the associated barriers to justice”. As a result lawyers were turning towards third-party funders.
The ruling, unusually, laid out the terms of Harbour’s funding agreement: an indemnity of up to C$1m for the motions to certify the class action and grant leave to commence the case, and C$5m thereafter in respect of any common issues trial.
If successful, Harbour would be repaid any adverse costs it paid and receive a percentage of the net recovery of the class (net of lawyers’ fees, taxes and other costs) – 7.5% if the case settles before certification or 10% afterwards.
The lawyers are working on a full contingency fee basis and covering the disbursements.
The court held that it had to approve third-party funding agreements in class actions before they took effect and extracted a series of principles from the developing case law that need to be taken into account, including:
- Third-party funding agreements are not categorically illegal on the grounds of champerty or maintenance, but a particular agreement might be;
- The agreement is not a privileged document.
- The agreement “must not compromise or impair the lawyer and client relationship and the lawyer's duties of loyalty and confidentiality or impair the lawyer’s professional judgment and carriage of the litigation”;
- The agreement must not diminish claimant’s rights to control the litigation.
- The court must be satisfied that the representative claimant will have less interest in the conduct of the case because they are not at risk of adverse costs;
- The court must be satisfied that the agreement is necessary in order to provide access to justice; and
- The court must be satisfied that the agreement is fair and reasonable to the class, and that the funder will not be over-compensated.
Susan Dunn, head of litigation funding at Harbour, said: “This decision reflects a clear endorsement by the Ontario court of the benefits of third-party funding by professional funders like Harbour.
“This is a continuation of decisions Harbour has seen in courts in other common law jurisdictions outside the UK in which it has funded cases – including New Zealand, Bermuda, Jersey and the British Virgin Islands – where the courts have affirmed Harbour's litigation funding and recognised litigation funding as an essential component of the litigation landscape.”