Canada: Court Rejects Plaintiffs' Request For In Camera Funding Approval Motion

The plaintiffs in this putative class action unsuccessfully sought to exclude the defendant, Sun Life, from participating in a motion for the approval of a third party funding agreement. In particular, the plaintiffs sought orders permitting them to (i) to bring the funding approval motion on an ex parte basis (ii) close the motion to the public, and (iii) have the motion materials for the motion sealed. Justice Perell dismissed the plaintiffs' motion in its entirety and pursuant to s. 12 of the Class Proceedings Act, set out the procedures to be followed by the parties on the funding approval motion.

The plaintiffs submitted that the disclosure of the third party funding agreement would reveal privileged information regarding the legal advice and the plaintiffs' litigation strategy. It was argued that the disclosure of the agreement would imperil the privilege which, in turn, would adversely affect access to justice for the class, risk a fair trial and harm the administration of justice. Sun Life opposed the motion.

After examining the goals of class proceedings, including the goal of providing plaintiffs with access to justice, Perell J. considered the current state of the law in Ontario with respect to third party funding agreements. His Honour concluded that while third party funding agreements are not categorically illegal, it should be regarded as an "unsettled issue and work in progress". Justice Perell then turned to the three issues on the motion: (i) whether Sun Life was entitled to notice of the funding approval motion, (ii) whether third party funding agreements are protected from disclosure on the basis of privilege, and (iii) whether on the funding approval motion the court should be closed to the public.

Notice to the Defendants

Justice Perell concluded that if the defendant is found to be "affected" by the outcome of the funding approval motion, then it is entitled to notice and an opportunity to be heard the motion. In determining that Sun Life would be affected, Perell J. held that as a matter of policy a defendant should be able to participate in such motions. More specifically, Perell J. found that the defendant may raise questions which would provide useful information to the court, including whether the agreement is champertous or otherwise contrary to public policy, whether the commitment to pay an adverse costs award is directly enforceable by the defendant and whether the agreement is subject to any regulatory regimes or legislation (i.e. the Insurance Act, the Securities Act and/or the Criminal Code). In order to answer such questions the precise role of the third party funder must be determined and, therefore, unless the plaintiffs could make out a case for protecting solicitor-client privilege or some other public policy argument, Perell J. held that Sun Life is entitled to notice, and service of the motion materials (including the third party funding agreement) and is permitted to participate in funding approval motion.

Third Party Funding Agreements and Solicitor-Client Privilege

The plaintiffs submitted that the disclosure of the third party funding agreement would imperil solicitor-client, litigation and/or common interest privilege as the funding agreement may contain legal advice and information regarding the plaintiffs' litigation strategy. Justice Perell dismissed this argument holding that a third party funding agreement is not privileged, or if it is privileged, public policy requires that the privilege be waived.

A third party funding agreement should not reveal any privileged information as the agreement is not about communications between a solicitor and client but is about who is paying for the lawsuit, the funder's motivation and the independence of the representative plaintiff. If a third party funding agreement contains privileged information, Perell J. held that the inclusion of that information in the agreement is unnecessary, improper and would indicate that the third party has assumed control of the litigation. In those circumstances, Perell J. noted that the court could not approve the agreement. Justice Perell held that even if a third party funding agreement was presumptively privileged, that presumption had been rebutted for the same reasons.

Despite finding that the third party funding agreement was not privileged, Justice Perell went on to hold that even if a third party agreement is, in fact, privileged, precedent, policy and fairness require that the privilege be waived.

The Open Court Principle

In order for a court proceeding to be closed to the public, the plaintiffs must establish that (i) there is no serious risk to the proper administration of justice and there are no reasonable means to prevent that risk, and (ii) the salutary effects of the closing the court outweighs its deleterious effects. In the case at hand, Perell J. held that there was no serious risk of the plaintiffs not having access to justice as any risk would be self-inflicted - it was the plaintiffs and the third party funder, Bridgepoint, who had imposed the condition that the third party funding agreement could not be disclosed to Sun Life and that the agreement be conditional upon court approval. Further, Perell J. determined that there are reasonable means to prevent any risks to the administration of justice and that an order restricting the open court principle would not outweigh the deleterious effects of the order. Accordingly, the plaintiffs failed to establish the elements of the test for an order restricting the open court principle.

Procedure for Third Party Funding Approval Motion

Justice Perell recognized that third party funding approval motions are different from other motions in class proceedings and, thus, in reliance on s. 12 of the Class Proceedings Act, directed that the procedure for the plaintiff's funding approval motion be as follows:

  • The plaintiffs must obtain court approval for the third party funding agreement;
  • Approval may be obtained by motion on notice to Sun Life;
  • If the plaintiffs proceed with the motion for approval, they must serve a copy of the third party funding agreement covered by an affidavit setting out the reasons why it should be approved;
  • Sun Life may deliver an affidavit(s) in support of or in opposition to the approval of the third party funding agreement;
  • There shall be no examinations or cross-examinations without leave of the court obtained at a case management conference; and
  • On the motion for third party funding, the parties shall deliver factums.

For more information, see Fehr v. Sun Life Assurance Company of Canada, 2012 ONSC 2715

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