Litigation and third-party funding
It is not uncommon for people to find themselves in situations where they are facing a long legal battle, while simultaneously lacking funds to see them through to the finish line. In some instances, people may even seek out assistance from third parties.
Third-party litigation funding is a relatively recent and growing phenomenon in Canada. Canadian jurisprudence has recognized that the third-party litigation funding model can have a positive effect on access to justice. However, the model has raised concerns regarding strangers, involving themselves in the litigation of others’, improperly “stirring up strife.”
Historically, the common law has curtailed these concerns through the doctrines of champerty and maintenance. In McIntyre Estate v Ontario, the Ontario Court of Appeal has defined “maintenance” as being directed against those who, for an improper motive, become involved with the disputes of others, in which the maintainer has no interest whatsoever. Champerty is an egregious form of maintenance which carries with it the added element that the maintainer shares in the profits of the litigation.
Champerty is no longer a crime, and its strictures have been substantially loosened over time, recognizing that a bona fide business arrangement that did not “stir up” litigation was not necessarily champertous. In other words, the courts have recognized that a commercial motive is not necessarily an improper motive (see Buday v. Locator of Missing Heirs Inc.).
In Houle v St. Jude Medical Inc. the court summarized the current state of the law of champerty. Some of the main points are highlighted below:
- the elements of a claim of champerty are: (1) the defendant for an improper motive (officious intermeddling) provides assistance to a litigant in a lawsuit against the plaintiff; (2) the defendant has no personal interest in the lawsuit; (3) the defendant’s assistance to one of the litigants is without justification or excuse; and (4) the defendant shares in the spoils of the litigation;
- the law has evolved such that supporting another’s litigation is not categorically illegal, and thus, contingency fees and third-party funding of litigation has become a possibility;
- to approve a third-party funding agreement, the court must be satisfied that:
- (a) the agreement is necessary in order to provide access to justice;
- (b) the access to justice facilitated by the agreement must be substantively meaningful;
- (c) the agreement must be fair and reasonable;
- (d) the funder must not be overcompensated for assuming the risks of an adverse costs aware; and
- (e) the agreement must not interfere with the lawyer-client relationship.
In McIntyre Estate, the court held that it is the motive of the third party funder that is among the most relevant factors in determining whether maintenance is made out – if the motive is genuine and arises out of concern for the litigant’s rights, it is not maintenance.
In Houle, the court recognized that while the law no longer automatically treats third-party litigation funding agreements as unlawful, it does not follow -– in the class action industry – that a third-party funding agreement is necessary or appropriate in all cases. Instead, the court predicts that the common law in this area will continue to evolve incrementally, as each case comes forward.
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