Should a court hear from a defendant before approving third
party funding of a class action against that defendant? As we have
previously commented (see
here), courts in Ontario have usually answered "yes"
to that question. However, in Schneider v Royal Crown Gold Reserve
Inc a Saskatchewan court took a different approach: Chief
Justice Popescul approved a litigation financing and indemnity
agreement ("LFA") without any notice to the defendants.
Although he left open the possibility of the defendants challenging
the LFA in the future, his reasons suggest that generally courts do
not need to hear from defendants before approving third party
The Schneider Decision
The plaintiff started a class action claiming that he and other
class members lost money investing in a gold property because of
the defendants' alleged deceit, negligent and statutory
misrepresentations, negligence, and breach of contract. That class
action was certified in 2012.
In 2015, Saskatchewan went from being a "no costs
jurisdiction" to a "costs jurisdiction" as a result
of amendments to that province's Class Actions Act,
exposing the plaintiff to the risk of a significant costs award if
his action was eventually dismissed. To address that risk, the
plaintiff entered into the LFA and then applied for court approval
of that agreement.
Relying on decisions in other provinces approving similar
agreements, Chief Justice Popescul concluded that the court has
jurisdiction to approve the LFA. He also decided to approve the LFA
and grant a sealing order requested by the plaintiff.
Chief Justice Popescul then considered whether the plaintiff
should have given notice of his motion to the defendants. He
concluded that the defendants did not have any legal interest in
the motion, and notice was not required because it did not matter
"from whose pocket an adverse cost award is paid".
However, Chief Justice Popescul also stated that a copy of his
order should be served on the defendants and, because the motion
had been brought without notice, the defendants could apply to set
aside or vary the order in the future.
Implication for Defendants
The decision in Schneider, like earlier decisions in
Alberta and New Brunswick, can be contrasted with the approach
taken in Ontario and British Columbia, where courts have concluded
that the defendants' participation is of assistance to the
court. In Fehr v Sun Life Assurance Company of
Canada and in Bayens v Kinross Gold Corporation,
Justice Perell held that defendants are affected by third party
funding motions and they should be given the opportunity to
participate in such motions. However, more recently in Berg v Canadian Hockey League,
Justice Perell was willing to modify that approach and exclude the
defendants from part or all of the process because of the unique
nature and sensitivities of the agreement before him in that
Unlike Berg, the decision in Schneider was not
restricted to the particular agreement before the court. Rather,
contrary to the approach in Ontario, the decision suggests that
defendants are generally not affected by third party funding
agreements such that plaintiffs will usually not be required to
provide notice when seeking court approval of such agreements. That
being said, the decision does not leave defendants without any
recourse. As noted above, Chief Justice Popescul observed that the
defendants could apply to set aside or vary his order. That process
puts the onus on defendants to take steps that they would not
generally have to take in Ontario to ensure participation
(especially in cases where the agreement and the court record are
subject to a sealing order).
As these issues increasingly come before the courts, defendants
who face parallel class actions in more than one province may have
very different rights if a third party funding motion is brought in
one province versus the next. Further, disclosure of materials in
one province may effectively undermine a confidentiality order made
in another. Unless and until the approaches taken in different
provinces becomes more harmonious, defendants must be mindful of
these inconsistent rights of participation in third party funding
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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