The newest player in the Ontario litigation funding market has just presented its unique funding arrangement for approval in a class action for the first time.
“This is an evolution. Previous case law in the class action realm on litigation funding considered an arrangement where the lawyers were acting on a full contingency basis with a private funder providing some disbursements and some coverage for adverse costs,” states Tania Sulan, the Toronto-based chief investment officer of Bentham Canada, the subsidiary of Australian-based IMF Bentham.
“We have agreed to pay a portion of the lawyer’s fee so the lawyer operates on a partial contingency fee. We pay all the disbursements, rather than a capped amount, and court-ordered costs,” she says.
The motion for approval was argued in August 2017, before Justice Paul Perell.
His decision is now under reserve.
“Justice Perell was the right judge to be faced with an innovative agreement,” says David Lederman of Goodmans LLP of Toronto, who represented Bentham.
“He is well versed on the issues and was ready to raise concerns and questions.”
Lederman advises that Bentham has also sought approval of its funding arrangement in private litigation from the federal court at the end of July.
That decision is also under reserve.
“It was a novel application,” he says.
“The federal court has not considered approval of a litigation funding agreement before.
“One thing that is somewhat novel in this instance is that some of the funding is going to class counsel as the case is going forward,” Lederman says.
“In the ordinary course, class counsel carries it forward and then waits until the end of the day to see if it can recoup fees and disbursements.
“Bentham is funding a portion of the work in progress in fees. That is unique. It hasn’t happened before.”
The defendants were represented by McCarthy Tétrault LLP, which did not oppose the funding per se but had concerns over some of the terms of the arrangement.
The firm did not responded to requests for comment for this article.
Margaret Waddell of Waddell Phillips, acting for the representative plaintiff, presented calculations to show that the arrangement is to the class’s advantage.
“If we used our usual contingency fee arrangement and got funding from the Class Proceedings Fund, the class would be more out of pocket than under the Bentham arrangement,” she says. “It’s a good deal.”
Waddell says the defendant presented it as a shift, so the funder gets the biggest percentage instead of the lawyers.”
“That is because lawyers are taking on substantially less risk,” she says. “They are partially paid as they go along.”
Waddell says funding the legal fees frees up capital.
“The firm has more resources and the ability to take on more cases. Smaller cases that usually aren’t financially feasible become financially feasible,” she says. “Little firms that are risk averse may be more willing to take on a class action because the risks are substantially mitigated.”
One unusual aspect of the proceedings was that it live streamed on twitter.
Samantha Schreiber of Spark LLP, which provided the representative plaintiff with its independent legal advice, thought the proceedings were important enough to live-tweet.
“I felt they had precedential value for litigation funding approval. The court only started approving them in 2011,” she says.
“Every decision informs class counsel of the sort of arrangements the court will accept and the sort of terms the court will accept. It helps them to understand the parameters of what is acceptable to the court.”
Schreiber had some trepidation about tweeting from the court.
“I was quite nervous that Justice Perell was going to call me out,” she says. “It looked like I was just on my phone and not doing something legal, so I was worried he would notice.”
Lederman says the move reflects the “age of innovation.”
“It’s an open courtroom, so those interested can get access to statements made in the courtroom,” he says.
Apart from the uniqueness of the arrangement, the court’s main concern was with the termination provision in the funding agreement.
“The clause provides that certain events would allow Bentham, on 10 days’ notice, to terminate the funding arrangement while staying on the hook for court-ordered costs up until termination,” explains Lederman. “Events would include breaches by the plaintiffs or a situation where a lawyer seeks to withdraw from the proceedings. It also allows Bentham to terminate if it ceases to be satisfied that the merits of the proceedings warrant the claim being advanced or it is no longer commercially viable.”
Lederman says the court was concerned whether the funder has a right to terminate at all.
“Bentham can only engage the termination clause on a reasonable basis. Another provision allows parties to approach the court if there’s any dispute in the terms or obligations,” he says. “We were not opposed to making the issue of termination one that could readily go before a court. We could fashion an adjudication process whether before an arbitrator or judge in a private setting.”
Waddell says termination rights haven’t been explored in previous case law.
“The agreement is pretty clear,” she says. “If it’s terminating, Bentham will only recover to the extent that it put money into the case, not a percentage.”
Lederman expressed to the court it was more a theoretical concern than a practical one.
“There are so many reasons why the funder would not want to terminate in any event. Doing so puts the funder in the position of losing its investment,” he says.
“There are also implications to the fund’s reputation. People are expecting the funder to carefully assess the case and come into it for the long haul.”
Lederman advises that in Bentham IMF’s 17-year history, it has only had to terminate funding once.
“The commercial reality is that termination is a very rare possibility, but, that said, to compel the funder to stay in where it has determined reasonably on the merits it should not or that it is no longer commercially viable really would not serve the public interest at all. We don’t want cases clogging up the system,” he says.
Waddell says her response to the concerns “was that these are precisely the situations when a funder ought to be able to withdraw.”
“The funder could be accused of champerty by funding something it knows to be unmeritorious. That is exactly the stirring of strife that champerty laws are meant to prevent.”