Canada: Court Approves Third-Party Financing For Putative Class Action

Copyright 2009, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Class Actions, June 2009

For the first time, a Canadian court in Don Hobsbawn v. ATCO Gas and Pipelines Ltd. (ATCO) has approved a private third-party financing arrangement to fund a putative class action. The plaintiff and BridgePoint Financial Services Inc. (BridgePoint), a non-party financial institution, applied, on an ex-parte basis (without notice and hearing from the other side), and were granted an Order by the Honourable Mr. Justice S. A. Lovecchio in the Alberta Court of Queen's Bench approving not only the retainer agreement between the representative plaintiff and his counsel but an indemnity agreement between the plaintiff and BridgePoint to fund the lawsuit. The financing arrangement has been sealed, so the details of it are not currently public.

The nature of the ATCO action is the same or similar to that in Garland v. Consumers' Gas Co. (1998), 3 S.C.R. 112, decided by the Supreme Court of Canada. The facts in Garland were that Consumers' Gas, a gas utility, billed its customers a late payment penalty for payments received after the due date specified in its invoices, calculated at 5% of the unpaid charges for that month. The penalty was implemented by Consumers' Gas in 1975 following a series of rate hearings conducted by the Ontario Energy Board. The representative plaintiff in that class action commenced an action on behalf of a large number of Consumers' Gas customers alleging that the penalty violated section 347 of the Criminal Code because, for a significant number of customers each month, it constituted an allocation of interest at a rate exceeding 60% per year.

The allegations in the Statement of Claim in ATCO are similar. It alleges that ATCO has, since January 1, 1982, charged late payment penalties in violation of section 347 of the Criminal Code. In addition, it alleges that ATCO did not comply with certain sections of the Canada Interest Act requiring an express statement setting out the yearly rate of interest to which the late penalty is equated.

While the substantive nature of the claim is not novel, the fact that the representative plaintiff was able to obtain approval by the court of third-party financing will no doubt send a chill to defendants in proposed class action proceedings.

Under class action and other proceedings in Alberta, unsuccessful plaintiffs must generally pay the taxable costs and disbursements of a defendant in circumstances where a claim is struck out or otherwise dismissed. This differs from the "no-costs" regime implemented by class proceedings legislation in most other provinces. While the taxable costs regime was not developed to fully indemnify a defendant for its costs, the stated intent of that regime in Alberta has been to provide a 40-50% form of costs indemnification. That partial indemnification has been said to reflect an attempt to balance two conflicting interests. One argument is that if a party is successful in defending a claim, it is unfair to require the successful party to bear the costs incurred in defending the action. The competing argument is that if the unsuccessful party is required to bear the costs of a successful defendant, litigants may be unduly hesitant to commence a claim and assert their rights (even if valid). The partial indemnification practice as it exists in Alberta is a compromise of those positions and is intended to give some consideration for each of the conflicting policy considerations. Historically, the ability to collect costs from an unsuccessful plaintiff has acted as a factor in reducing the number of unmeritorious cases being commenced or otherwise prosecuted. Procedurally, the ability of defendants, in some cases, to require plaintiffs to post security for costs or be exposed to increased cost sanctions following formal offers have also been very useful tools in managing actions for defendants.

The absence of cost consequences creates, in effect, a "free-option" to plaintiffs in commencing an action. It is undeniable that without facing cost sanctions, plaintiffs are more readily able to commence and maintain actions against defendants. The ability of a plaintiff to obtain indemnification for costs by a third party who was otherwise a stranger to the dispute defeats the important policy considerations of providing a costs sanction to unsuccessful litigants, and seems to be at odds with the intentions of the Alberta legislature which chose to retain the costs regime in the Class Proceedings Act.

Historically, the ability of a third party to fund a lawsuit has been prevented by virtue of the imposition of a public policy against a stranger funding or otherwise "stirring up" litigation. The tort of "maintenance" prevented an officious intermeddler – a stranger to the cause of action without any previous commercial connection – from inciting litigation. "Champerty" is a form of maintenance in which the stranger maintains an action in return for a payment conditional upon success in the lawsuit or based upon a percentage of recovery in the lawsuit.

The question of whether an arrangement to fund a lawsuit is champertous turns upon the specific circumstances of the case, and it is for the court to determine whether the stranger to the action is stirring up or inciting litigation. While the details of the agreement between BridgePoint and the plaintiff in this matter remain undisclosed, it is noteworthy that this action appears to have lain dormant for nearly eight years following its original filing on February 28, 2001, until very recently.

This decision in ATCO raises the concern that the express decision of the Alberta legislature to maintain the normal cost consequences in a class proceeding, rather than follow the lead of other provinces by setting up a no-costs regime, has been further eroded. While funding by a third party does not prevent a successful defendant from receiving its partial payment of costs following disposition of the matter, it does fail to address the very valid policy reasons behind making unsuccessful plaintiffs liable to pay for such costs directly. If the representative plaintiff is not exposed to cost consequences directly, then more marginal claims may be commenced and prosecuted. The decision further raises questions about the torts of maintenance and champerty and how those issues will be dealt with in Alberta.

Given that the Order was obtained on an ex-parte basis, it arguably has less precedential value. It will be interesting to see what the result would be if such an application was made on notice and in circumstances where the defendant was vigorously objecting to the relief claimed. We can expect that such an application will arise soon.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
26 Oct 2018, Other, Vancouver, Canada

Cybersecurity, including data privacy and security obligations, has become a critical chapter in every company’s risk management playbook.

30 Oct 2018, Other, Toronto, Canada

Please join us for discussions on recent updates and legal developments in pension and employee benefits as well as employment law issues.

12 Nov 2018, Other, Toronto, Canada

Stories aren’t falsehoods. Stories are the root of all effective human communications: they motivate, animate and clarify. If you aren’t telling stories, you probably aren’t getting your point across.

 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions