Ruling by Canada's Supreme Court May Pave Way for More Litigation Finance
The high court ruled that litigation finance could be used for claims against third parties in insolvency proceedings.
June 01, 2020 at 07:49 PM
4 minute read
A recent decision by the Supreme Court of Canada involving third-party litigation funding may cause a spike in the outside investment of insolvency proceedings, especially coming on top of the economic downturn caused by the COVID-19 pandemic.
Canada's top court has given the green light to litigation funding agreements used in specific circumstances. On May 8, the Supreme Court of Canada issued a decision in which it ruled that litigation finance could be used in an insolvency proceeding. The case, 9354-9186 Québec v. Callidus Capital, opens the door to professional investment in insolvency matters, which are expected to rise in the wake of COVID-19 related financial fallouts.
"The case will have a significant impact on funding claims against third parties in insolvency proceedings," Sylvain Rigaud, the chair of Norton Rose Fulbright Canada's restructuring and insolvency team told Law.com International.
Rigaud represented the Insolvency Institute of Canada and the Canadian Association of Insolvency and Restructuring Professionals as interveners in the case.
The decision stems from a case in which defunct online casino company Bluberi Gaming Technologies Inc.'s only asset was a potential lawsuit against Callidus, its largest creditor—worth up to $200 million. But it needed cash to finance the litigation. The litigation funder previously called Bentham IMF, now operating as Omni Bridgeway Capital, provided the funds.
"Insofar as third-party litigation funding agreements are not per se illegal, there is no principle basis upon which to restrict supervising judges from approving such agreements as interim financing in appropriate cases," Chief Justice Richard Wagner and Justice Michael Moldaver wrote in a joint decision for the unanimous court.
The decision marked the first time the top court had ruled on such an arrangement.
"It's a very helpful clarification for the parties," said Rigaud, who noted that the case isn't a "complete road map," but grants trial judges the authority to approve this type of financing.
The court did not comment on litigation financing for class actions or private commercial matters.
"The actual issue before the Supreme Court was very narrow," said Douglas Fenton, a lawyer with Bennett Jones in Toronto whose paper on litigation financing was cited by the top court.
Fenton noted that the judges did not address the enforceability of litigation funding agreements more generally.
"In my own view, it's a bit of a missed opportunity. It would have been helpful to articulate a framework for the approval of these agreements."
But he said the decision shows the Supreme Court is signaling that litigation financing is "here to stay."
"We're really pleased with the results," said Paul Rand, Omni Bridgeway Canada's chief investment officer, who said Canada is "relatively new" to litigation funding.
IMF Bentham, which merged with Omni Bridgeway in November, has been in the market for the past five years.
"It is a busy market, and our observation is it's growing," said Rand. But he noted that Canada is "not the U.S. in terms of scale and volume of mega litigation."
Omni competitor Woodsford Litigation Funding expanded to Canada in November.
Camille Cameron, dean of the Schulich School of Law at Dalhousie University in Halifax, Nova Scotia, and an expert in the administration of civil justice, said litigation funding is increasingly common in Canada.
"As in many other jurisdictions, much of the jurisprudence has developed in the class actions context," she said.
Rand expects the Bluberi case will open up the market further.
"The fact that the Supreme Court decision greenlights litigation funding is extremely helpful to us in reinforcing that litigation finance is a valid and viable strategy for people to pursue."
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