Canadian Lawyer

LEGAL REPORT/Litigation The future of class funding Are third-party funders going to be the saviours of the class action regime or will a no-cost system prevail? O ntario Superior Court Justice Paul Perell recently handed thirdparty litigation funders and plaintiffs the road map to a court-approved class action funding agreement. The July 26 decision in Bayens v. Kinross Gold Corp., which gave the go-ahead for a U.K.-based funder to backstop a $4-billion securities class action launched by disgruntled investors in a mining company in exchange for a cut of any settlement, summarizes four years of third-party funding jurisprudence painstakingly crafted by judges working in a legislative void on the subject. "There was a time when you didn't know if this type of agreement could be approved at all, because many thought they may be champertous. But judges in Ontario have become more comfortable with the idea," says Celeste Poltak, a partner at Toronto's Koskie Minsky LLP, whose law firm acted for the plaintiffs in negotiations with London-headquartered Harbour Litigation Funding Ltd. for its first foray into the Canadian market. "We know now which types of agreement will be approved, and in the decision, Justice Perell goes through the hallmarks to look for," adds Poltak. But just as third-party funding seems primed to skyrocket, some say the emerging clamour for a no-cost regime for Ontario class actions could smother the developing industry, and render the hard work of Perell and his colleagues moot. "If Ontario is made no-cost, then all this goes out the window," says James Orr, a cofounder of plaintiff-side class action firm Kim Orr Barristers PC. "The percentage cut they ask for is really more related to protecting against adverse costs than it is to funding disbursements, so everyone would have to change their model." Poltak says the evolution of costs awards in class actions is at the heart of rising demand for third-party funders. Following Ontario's passage of the Class Proceedings Act in 1992, she says most failed certification motions landed plaintiffs with costs of $10,000 to $25,000, sums potentially absorbable by counsel. A number of pioneering actions escaped costs altogether under s. 31 of the act, which grants judges discretion in a proceeding that was a "test case, raised a novel point of law, or involved a matter of public interest," but that threshold gets harder to meet every year. Eyebrows were raised in the early 2000s when those costs hit six figures. A decade later, they're closer to seven, without any hint of a trial. Just last year, Ontario's Divisional Court upheld a $700,000 cost award against a representative plaintiff indemnified by class counsel in Martin v. AstraZeneca Pharmaceuticals Plc. That has scared off all but a few plaintiff firms either willing or able to offer indemnities. Koskie Minsky has used Ontario's Class Proceedings Fund as an alternative to indemnity. It pays for disbursements and covers any adverse cost awards, taking a 10-per-cent levy on any award or settlement in return. However, demand for it far outstrips its supply of funding, and into the gap have stepped third-party funders. Poltak says she's glad to see judges embracing them, albeit cautiously. "I don't think anyone could have envisioned the astronomical costs awards we've seen in the last five www.CANADIAN L a w ye r m a g . c o m Jan uary 2014 45 Matthew Billington By Michael McKiernan

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