SCC ruling lays foundation for litigation funding as an access to justice tool

SCC ruling lays foundation for litigation funding as an access to justice tool

Monday, March 30, 2020 @ 9:27 AM | By Larry Herscu for The Lawyer’s Daily

The Supreme Court of Canada’s unanimous decision in a corporate insolvency case is the first time the country’s top court has contemplated third-party litigation funding and it’s anticipated that the judgment will provide much-needed guidance for other areas of law, including personal injury.

The top court’s decision in 9354-9186 Québec Inc. v. Callidus Capital Corporation was issued from the bench in late January with reasons to follow. In brief, the SCC looked at whether Companies’ Creditors Arrangement Act debtors, whose only assets are litigious claims, need to obtain creditor approval for litigation financing by way of a plan of arrangement.

At trial, the judge ruled that such an approval was not necessary, but a unanimous Quebec Court of Appeal disagreed. While we eagerly await the written reasons, the fact that the SCC reinstated the decision of the Quebec Superior Court opens the door for more creative and accessible solutions for access to justice.

There’s no doubt that it’s increasingly difficult for the average litigant — whether a plaintiff or corporation — to hire legal representation. In Manitoba, legislation was recently introduced to provide more affordable options for legal information and representation while ensuring appropriate public protections are in place.

This speaks to the core of the problem — litigation is too expensive — and third-party litigation funding enables plaintiffs to withstand the length of time it takes their counsel to negotiate fair settlements on their behalf.

Third-party litigation funding is well established in other common law jurisdictions where doctrines of maintenance and champerty existed, such as the United Kingdom and Australia. Not only is third-party funding endorsed by the judiciary and policymakers, but it is also viewed as a vital access to justice tool.

While Canada may be behind some of our common law counterparts, the opportunities for third-party litigation funding are increasing with new lenders entering the market and evolving case law. Besides class action funding, several decisions have led courts down the path of addressing third-party funding and access to justice in personal injury matters.

In 2009, the Court of Queen’s Bench of New Brunswick (Bourgoin v. Ouellette [2009] N.B.J. 164) recognized the interest on a litigation loan as part of the plaintiff’s disbursements in a civil action involving a motor vehicle accident.

The judge noted the only option that seemed to be open to the plaintiff “in order to have access to justice, claim his rights and obtain such a considerable settlement, was to get a loan from a financial institution able to support his allowable disbursements for the duration of the action.”

Justice Thomas E. Cyr acknowledged that while the interest rate charged by the funder was high, the institution agreed to finance the case at an elevated risk to itself.

“Seahold Investments Inc. was the institution which agreed to do it, at a very high interest rate, but also at an elevated risk to itself. It must be noted that the Bank of Nova Scotia did not want to take on this risk for a lesser amount,” Justice Cyr wrote.

In 2012, in LeBlanc v. Doucet and the New Brunswick Power Corporation 2012 NBCA 88, the Court of Appeal of New Brunswick allowed the personal injury plaintiff to recover $14,000 in interest on litigation loans used to finance disbursements. At the time of the motor vehicle accident, the plaintiff was a 17-year-old student living with his parents and unable to pay the cost of litigation.

In a 2014 costs decision in National Bank Financial Ltd. v. Potter 2014 NSSC 264, the successful plaintiffs claimed disbursements of more than $312,000, which included over $80,000 in interest on litigation loans.

In 2015, the Ontario Superior Court extended the principles developed in the class action context to single-party commercial litigation. In the matter of Schenk v. Valeant Pharmaceuticals International Inc. 2015 ONSC 3215, Justice Thomas J. McEwen considered whether the rules against maintenance and champerty prohibited a plaintiff of limited means from contracting with a litigation funder, who covered all legal fees and disbursements in exchange for a portion of the recovery.

McEwen held that such an agreement was not per se champertous, and there was “no reason why such funding would be inappropriate in the field of commercial litigation.”

As both the case law and attitudes around third party litigation funding continue to evolve, the door is open for more creative and equitable access to justice solutions for Canadian plaintiffs.

As litigation funders and members of the bar eagerly await the SCC’s written decision in Callidus Capital Corporation to provide more clarity and guidance around the rules and regulations surrounding litigation funding, there is no doubt the decision from the bench sets a precedent for access to justice.

Larry Herscu is the president and founder of the Easy Legal Group of Companies, a Canadian legal financing corporation. Its lending solutions service the personal injury sector, including plaintiffs with pending injury claims. Services are delivered through Easy Legal Finance Inc. and Rhino Legal Finance Inc.

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