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CITATION: Fehr v. Sun Life Assurance Company of Canada 2012 ONSC 2715 COURT FILE NO.: 10-CV-411183 CP
DATE: May 7, 2012
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Eldon Fehr, Angela Watters, Gaetan Laurier, Leslie Michael Lucas and Joseph (Yung Yub) Kang
Plaintiffs
- and -
Sun Life Assurance Company of Canada Defendant
Proceeding under the Class Proceedings Act, 1992
COUNSEL:
• Won J. Kim, Victoria Paris, and Megan B. McPhee for the Plaintiffs • F. Paul Morrison, Glynnis P. Burt, and Heather L. Meredith for the Defendant • Ward K. Branch for Bridgepoint Global Litigation Services Inc.
HEARING DATE: April 20, 2012
PERELL, J.
REASONS FOR DECISION
A. INTRODUCTION
[1] This motion explores the largely still unexplored legal territory of third party funding of Ontario class proceedings. If a premise of the moving party’s argument is correct, then the outcome of this motion for directions about the procedure for a funding motion will have profound chilling effects on the viability and availability of class actions in Ontario.
[2] The Plaintiffs, Eldon Fehr, Angela Watters, Gaetan Laurier, Leslie Michael Lucas, and Joseph Kang are purchasers of life insurance policies. In a proposed David v. Goliath type class action, the Plaintiffs sue Sun Life Assurance Company of Canada (“Sun Life”) for $2.5 billion for negligent misrepresentation. Relying on rule 37.07(2) of the Rules of Civil Procedure, which provides that “where the nature of the motion or the circumstances render service of the motion impracticable or unnecessary, the court
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may make an order without notice,” the Plaintiffs seek orders: (a) that a motion for approval of a third party financing and indemnity agreement be heard without notice to Sun Life; (b) that the hearing of the motion be closed to the public; and (c) that the documents for the motion be sealed.
[3] The Plaintiffs submit that the third party funding agreement discloses elements of the their litigation strategy and that the agreement was negotiated confidentially and is privileged. The Plaintiffs submit that the funding agreement is part of the retainer with their lawyers, Kim Orr Barristers P.C. and that disclosure of the funding agreement would reveal confidential and sensitive information regarding the legal advice and litigation strategy. They say disclosure could reveal the resources available to prosecute the action and the tolerance to risk of the Plaintiff and revealing this information to Sun Life would provide it with a tactical advantage in the litigation.
[4] Most potently, they submit open court disclosure of the agreement would imperil solicitor-client privilege and litigation privilege which, if not protected, would adversely affect access to justice for the class, risk a fair trial, and harm the administration of justice. They submit that solicitor-client privilege is an interest of such importance to override the open court principle.
[5] Further, the Plaintiffs submit that Sun Life will not be prejudiced by an in camera hearing and any public interest engaged in disclosure of the funding agreement is outweighed by the possible deleterious effects to the Plaintiffs’ and Class Members’ privilege and access to justice. The Plaintiffs submit that it is in their best interests and of putative class members to have Sun Life excluded from the hearing of the motion and to keep the terms of the funding agreement secret and disclosed only to the court but not the public and the Defendant.
[6] Sun Life opposes the motion, and it asks that it be permitted to participate in the Plaintiffs’ funding motion. I will describe its arguments below.
[7] I agree with Sun Life’s arguments, and for those reasons and for my own reasons, set out below, I dismiss this motion - but with directions.
[8] As I will explain, in the context of a class proceeding, the terms of Class Counsel’s retainer agreement and any associated third party funding agreement are not privileged in law and ought not to be regarded as privileged as a matter of public policy. Further, in my opinion, in any event, if the retainer agreement and any associated third party agreement were privileged, then the privilege is waived when the plaintiff’s lawyer applies, as he or she must apply, for approval of a fee agreement that involves a contingency fee or third party funding agreement. Thus, the importance of protecting
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solicitor-client privilege does not justify an in camera ex parte-hearing and the sealing of the third party funding agreement.
[9] Further, in my opinion, Sun Life is “affected” by the application for approval for third-party funding and it has a right to disclosure of the third party funding agreement and a right to be heard on the motion for its approval.
[10] In the context of an adversarial system of justice, the defendant’s opposition or support for the third party funding agreement will provide the Court with information useful to the determination of whether to approve the third party funding agreement and the defendant’s participation may obviate the need to appoint an amicus to fill an adversarial void in the approval process.
[11] That all said, in my opinion, special procedural rules for a motion for approval of a third party agreement motion do need to be developed but not the in camera procedure suggested by the Plaintiffs. For instances, there should be no automatic right to cross-examine and if leave is granted to cross-examine, then the scope of the cross-examination should be prescribed before the cross-examination begins.
[12] Best practices also need to be developed. Third-party agreements ought not to disclose information about the plaintiff’s lawyer’s views about the strengths or weaknesses of his or her client’s proposed class action.
B. METHODOLOGY
[13] In order to explain my reasons for dismissing the Plaintiffs’ motion, it is necessary to discuss a diverse set of legal topics and also a little about the economic theory behind the access to justice provided by class actions.
[14] I have organized these Reasons for Decision under the following headings:
• Introduction
• Methodology
• Factual and Evidentiary Background
• The Economic Theory behind the Access to Justice of Class Actions.
• The Current Law about Litigation Funding
• Analysis
o Introduction
o Notice
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o Third Party Funding Agreements and Solicitor- Client Privilege
o The Open Court Principle
• Procedure for a Third Party Funding Motion
• Conclusion
C. FACTUAL AND EVIDENTIARY BACKGROUND
[15] The proposed third party funder, Bridgepoint Global Litigation Services Inc. (“Bridgepoint”) appeared on the return of this motion. It did not file any material.
[16] In support of their motion, the Plaintiffs relied on an affidavit from Norman Mizobuchi, who is an associate with Kim Orr practicing in class actions and complex commercial litigation.
[17] In opposing the motion, Sun Life relied on an affidavit from Susan Kraker, who is an assistant at McCarthy Tétrault, LLP, which is Sun Life’s lawyer of record,; Ms. Kraker disclosed some correspondence that passed between the lawyers for the parties.
[18] Although Sun Life objected, the evidence provided by the Plaintiffs through Mr. Mizobuchi’s affidavit was supplemented by some factual submissions made during Mr. Kim’s argument. I will accept these factual submissions as established. Since I will be dismissing the motion, I see no harm to Sun Life in allowing the Plaintiffs to fill a few holes in the evidence for their motion.
[19] I, therefore, accept that the Plaintiffs are of modest means and the value of their individual claims are small and that it would financially suicidal for any of the Plaintiffs to pursue their claims and expose their limited assets to any adverse costs award of an unsuccessful action against Sun Life.
[20] I accept that the Plaintiffs were prepared to pursue their own claims and the claims of the putative class of other policyholders only if they obtained two commitments from Kim Orr; namely: (1) that the firm would take on the case on a contingent fee basis; and (2) the Plaintiffs would be indemnified, i.e. held harmless, if they were obliged to pay a costs award to Sun Life.
[21] The Plaintiffs obtained both commitments from Kim Orr conditional upon the Court approving the third party funding agreement provided by Bridgepoint, which revealed itself as the proposed third party funder at the hearing of the motion.
[22] The details of the funding agreement have not been disclosed.
[23] The Plaintiffs fear of an adverse costs award is no figment of their imagination. Plaintiffs in Ontario class actions are exposed to costs awards and class actions are
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notoriously high stakes and high costs proceedings. Ontario is a “loser-pays” jurisdiction. Although it is early days in this action, there is no doubt that it will be hard fought and costly. There already has been a pleadings motion; the Plaintiffs were the losers and costs of $73,645.02 were awarded against them on a partial indemnity scale in any event of the cause. (The decision is currently under appeal.) Sun Life had claimed $219,896.36 for the costs of the pleadings motion.
[24] The Plaintiffs have a written retainer agreement with Kim Orr Barristers P.C., and the Plaintiffs have entered into a conditional agreement with Bridgepoint, a third party funder, for the purposes of financing the litigation or protecting the Plaintiffs from the risk of an adverse costs liability. The funding agreement is conditional upon court approval.
[25] I accept that the proposed agreement, which I have yet to see, is an agreement between Bridgepoint and the Plaintiffs but a chief beneficiary of the agreement is Kim Orr, because, practically speaking, the funding agreement protects the law firm in the event it was called upon on to indemnify the Plaintiffs for an adverse costs award payable to Sun Life.
[26] For the purposes of this motion, I accept that although the Plaintiffs did not pursue third party funding before they commenced this action, if third party funding is not obtained, Kim Orr will not agree to indemnify the Plaintiffs, and the law firm and the Plaintiffs may abandon their proposed class action against Sun Life.
[27] I accept that Kim Orr exercised due diligence and “shopped around” for a third party funder. The negotiations with Bridgepoint were arms-length and difficult.
[28] The Plaintiffs argue that the commercial interests of the third party funder would be adversely affected if the terms of the agreement are disclosed because its business depends upon its ability to negotiate confidential terms with each of its clients.
[29] Although it is more argument than evidence, the Plaintiffs say that the third party funding agreement was negotiated for the purposes of this litigation and that it is protected by solicitor-client privilege, litigation privilege, and common interest privilege.
[30] The Plaintiffs argue that third party funding agreements “assist in leveling the playing field between plaintiffs and defendants in class proceedings, thereby providing access to justice.” They say that as persons seeking access to justice, they are confronted with a far more financially resourced opponent. They argue that the third party funding agreement will make it possible for lawyers to assume the risks and costs of high stakes litigation.
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[31] The Plaintiffs say that if they are obliged to disclose their retainer agreement and the third party funding agreement, they will reassess whether to proceed with a motion for court approval of the third party funding agreement. The inference is that if they lose this motion for an in camera hearing then they may not proceed with their motion for approval of the third party funding and they may abandon the proposed class action that would provide access to justice for the thousands of class members.
[32] The Class Proceedings Fund is an alternative source of funding but the Plaintiffs did not apply for funding from the Class Proceedings Fund.
[33] The Class Proceedings Fund was not given notice of this motion and did not participate in the motion.
[34] The Defendant did not submit any evidence for this motion. Both parties provided helpful factums and helpful legal argument during the hearing of the motion.
D. THE ECONOMIC THEORY BEHIND THE ACCESS TO JUSTICE OF CLASS ACTIONS
[35] Doctorial thesis, law reform commission reports, and legal texts and articles of considerable length have been written to explain the public policy and economic theory behind class actions. For present purposes, it is sufficient to summarize some of the theory as follows.
[36] The theory of class actions begins with the notion of wrongdoing suffered by an identifiable group of individuals where it would be improvident for the members of the group (the class members) to obtain access to justice. The case at bar provides an example of an alleged wrongdoing affecting a group of purchasers of insurance policies, but the types of groups affected by wrongdoing are diverse, including stock purchasers, condominium unit purchasers, tenants, owners of environmentally contaminated properties, patients, passengers, vacationers, consumers, contractors, distributors, franchisees, employees, and ratepayers.
[37] A defendant that harms many should not be able to get away with it, and those who suffer should have access to justice for the injuries they suffer. Thus, it is both necessary and just that the substantive law and procedural law should have a means to respond to wrongdoing harming many. From the perspective of the substantive law, with some exceptions and sometimes with the assistance of statutes and with the prospect of incremental growth, the common law and equity do have the means and are adequate to respond to wrongdoing affecting many persons.
[38] From the perspective of procedural law, there is, however, a problem. From this perspective, the normal rules of civil procedure do not provide an economically feasible
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means to litigate group claims because the normal rules of procedure do not respond to the economics of litigation that make the prosecution of these claims uneconomic and prohibitively expensive for plaintiffs. The normal rules of procedure also have difficulties administering the multiplicity of proceedings that is or could be the aftermath of a wrong inflicted on a group of individual similarly-affected claimants.
[39] Class action legislation, like Ontario’s Class Proceedings Act, 1992, is designed to overcome the economic barriers to access to justice and to provide the procedural means to litigate mass claims. In doing so, class actions are said to have three public policy goals associated with litigating mass wrongdoings; namely: (1) access to justice for numerous claimants; (2) judicial economy so that courts can adjudicate numerous claims fairly and efficiently; and (3) behaviour modification, so that wrongdoers may be brought to the seat of justice and other potential wrongdoers may be deterred from similar wrongdoing.
[40] To be more expansive about the public policy goals, class actions are designed to provide access to justice because they provide a procedural means for individuals to litigate claims on behalf of a group. They provide judicial economy because by allowing an individual to represent the group’s claim through the mechanism of a class action, a multiplicity of proceedings is avoided as is the embarrassment of possible inconsistent results in multiple proceedings about the same alleged wrongdoing. Class actions provide behaviour modification because defendants learn not to think they can commit wrongs harming many and get away with it simply because no individual claimant could afford to pursue justice for himself or herself, let alone for a group of similar claimants. Class actions also have a deterrent effect and their mere possibility discourages wrongdoing.
[41] It must, however, not be forgotten that the public policy goals of class actions must be achieved without sacrificing the due process rights of the defendant who may be innocent of wrongdoing.
[42] There are at least three economic barriers that confront a group or class that has been harmed by a wrongdoer. First, the economics of litigation (economies of scale and efficiency) favour the defendant and not the claimant. Second, there is the cost of obtaining legal services to prosecute the claim. Third, there is the claimant’s exposure to an adverse costs award payable to the defendant. Class action legislation is designed, in part, to overcome these three economic barriers access to justice for members of a group.
[43] By aggregating the group members’ claims, a class action is designed to balance the litigation efficiencies that normally favour the defendant. For example, where a defendant harms many, the harm caused by the defendants to each member of the group
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may be small or even trifling, but in the aggregate, the extent of the harm caused may be enormous.
[44] For example, if a class had a million members and each individual class member suffered a loss of $100, then the aggregate loss or unjust enrichment inflicted by the defendant would be $100 million. For individual plaintiffs, however, it makes no economic sense to invest any money to pursue a $100 claim. In contrast, the defendant’s investment in mounting a defence to one claimant's case has utility for resisting other claimants' cases.
[45] Moreover, without a class proceeding, a plaintiff's investment in his or her litigation has no additional economic utility because it cannot be shared by the next claimant. These phenomena are discussed by Craig Jones in Theory of Class Actions (Toronto: Irwin Law, 2003) at pp. 22-24, where he states:
In the "traditional" or individualistic legal regime, a tort action may be viewed as connecting the tortfeasor on one hand and its victim on the other. In a mass tort, by comparison, the tortfeasor lies at the hub of the actions which might be seen to radiate from the decisions made at the centre. Viewed in this way, it is not difficult to see how the economy of scale in a dispute resolution process will naturally favour the defendant who can reuse the work product involved in the defence of issues common to all claims. Not so the numerous plaintiffs, who must begin anew with each new case, even on the common issues. This dichotomy is at the heart of mass tort -- the defendant has mass-produced the wrong; the plaintiffs suffer the harm and bear the costs individually. This "structural asymmetry" has been called a systemic bias in favour of defendants ...
It is not difficult to foresee the results of structural asymmetry in the individual litigation of mass torts. Mass tort defendants will tend to overspend on litigation in individual suits because their economy of scale permits them to invest in each initial claim an amount far greater than the claim is worth; this strategy makes success more likely in the early suits, compounding the advantage in the aggregate. Faced with such unequal litigation power, suits are discouraged or settled for too little, and confidentiality agreements extracted by defendants at the time of settlement may preclude "free riders" from taking full advantage of the work that has been done before, while the defendant is free to do so.
[46] At page 25, Mr. Jones adds:
For these reasons, mass tort theorists increasingly accept that a fundamental -- some would say the only fundamental reason -- for aggregating litigation is to redress the imbalance between mass tort defendants and plaintiffs, to "level the playing field" so that plaintiffs can enjoy the economies of scale that defendants have always exploited, and thereby increase their recovery.
[47] For present purposes, I need not say more about about the first economic barrier, because it is the second and third economic barriers to access to justice that are relevant to the outcome of this motion and to the funding motion that may follow.
[48] The availability of contingency fee agreements and the court’s supervision of lawyers’ fees address the second economic barrier confronting a group pursuing access
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to justice. The relevant provisions of the Class Proceedings Act, 1992, about fees, disbursements, and retainer agreements are sections 32 and 33, which state:
Fees and disbursements
32. (1) An agreement respecting fees and disbursements between a solicitor and a representative party shall be in writing and shall,
(a) state the terms under which fees and disbursements shall be paid;
(b) give an estimate of the expected fee, whether contingent on success in the class proceeding or not; and
(c) state the method by which payment is to be made, whether by lump sum, salary or otherwise.
Court to approve agreements
(2) An agreement respecting fees and disbursements between a solicitor and a representative party is not enforceable unless approved by the court, on the motion of the solicitor.
Priority of amounts owed under approved agreement
(3) Amounts owing under an enforceable agreement are a first charge on any settlement funds or monetary award.
Determination of fees where agreement not approved
(4) If an agreement is not approved by the court, the court may,
(a) determine the amount owing to the solicitor in respect of fees and disbursements;
(b) direct a reference under the rules of court to determine the amount owing; or
(c) direct that the amount owing be determined in any other manner.
Agreements for payment only in the event of success
33. (1) Despite the Solicitors Act and An Act Respecting Champerty, being chapter 327 of Revised Statutes of Ontario, 1897, a solicitor and a representative party may enter into a written agreement providing for payment of fees and disbursements only in the event of success in a class proceeding.
Interpretation: success in a proceeding
(2) For the purpose of subsection (1), success in a class proceeding includes,
(a) a judgment on common issues in favour of some or all class members; and
(b) a settlement that benefits one or more class members.
Definitions
(3) For the purposes of subsections (4) to (7),
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“base fee” means the result of multiplying the total number of hours worked by an hourly rate; (“honoraires de base”)
“multiplier” means a multiple to be applied to a base fee. (“multiplicateur”)
Agreements to increase fees by a multiplier
(4) An agreement under subsection (1) may permit the solicitor to make a motion to the court to have his or her fees increased by a multiplier.
Motion to increase fee by a multiplier
(5) A motion under subsection (4) shall be heard by a judge who has,
(a) given judgment on common issues in favour of some or all class members; or
(b) approved a settlement that benefits any class member.
Idem
(6) Where the judge referred to in subsection (5) is unavailable for any reason, the regional senior judge shall assign another judge of the court for the purpose.
Idem
(7) On the motion of a solicitor who has entered into an agreement under subsection (4), the court,
(a) shall determine the amount of the solicitor’s base fee;
(b) may apply a multiplier to the base fee that results in fair and reasonable compensation to the solicitor for the risk incurred in undertaking and continuing the proceeding under an agreement for payment only in the event of success; and
(c) shall determine the amount of disbursements to which the solicitor is entitled, including interest calculated on the disbursements incurred, as totalled at the end of each six-month period following the date of the agreement.
Idem
(8) In making a determination under clause (7) (a), the court shall allow only a reasonable fee.
Idem
(9) In making a determination under clause (7) (b), the court may consider the manner in which the solicitor conducted the proceeding.
[49] In Ontario, the Class Proceedings Act, 1992, authorizes contingency fee agreements for class actions, and the Act requires court approval for fee agreements or the judicial review of Class Counsel’s fees and disbursements. The policy idea of encouraging access to justice by allowing contingency fees and of approving or determining lawyer’s fees is simple enough, but it has profound implications to the administration of justice and to the nature of the relationship between a lawyer and his
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or her client, particularly the ethical and professional duties of the lawyer, including the duties of loyalty and (as this decision will reveal) the duties of keeping confidences and of not disclosing privileged information.
[50] In exchange for not charging a fee and for assuming the expense of the disbursements should the client’s claim fail, the class action lawyer obtains a share of the recovery should the client’s claim succeed. The risks and rewards for the lawyer brave enough to take on the retainer are enormous. To use the above example of a $100 million aggregate claim, even without accounting for a liability for an adverse costs award, a failure in the class proceeding might bankrupt the law firm, while a success could be worth $30 to $40 million in revenues and reimbursements for the law firm.
[51] For present purposes, the point to note is that the Legislature has decided that access to justice can be promoted by means of entrepreneurial lawyers taking on the risks of group litigation in exchange for a share in the claimant’s recovery.
[52] This brings the discussion to the third economic barrier to access to justice. To return to the example, it would be insane for a claimant with a $100 claim to take on the risk of paying a successful defendant its costs of defending a $100 million aggregate claim. Thus, a class action regime must address the barrier of the representative plaintiff’s exposure to costs.
[53] I am aware of five means to address the third economic barrier to access to justice caused by the prospect that a representative plaintiff could be liable for an adverse costs award payable to the defendant: (1) self-help fund raising; (2) a no-costs regime; (3) funding from the Law Foundation of Ontario; (4) indemnity agreements from Class Counsel; and (5) third party funding agreements.
[54] Commenting briefly about the five alternatives, in the past, self-help fund raising was used by public interest litigants who would select a representative plaintiff and raise funds to pay for his or her legal fees and exposure to costs awards. This method to circumvent the second and the third economic barriers to class action litigation is still available in Ontario.
[55] A no-costs regime, the most direct means to address the economic barrier caused by an adverse costs award, is not available in Ontario. The Class Proceedings Act, 1992, addresses costs in section 31 of the Act, which states:
Costs
31. (1) In exercising its discretion with respect to costs under subsection 131 (1) of the Courts of Justice Act, the court may consider whether the class proceeding was a test case, raised a novel point of law or involved a matter of public interest.
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Liability of class members for costs
(2) Class members, other than the representative party, are not liable for costs except with respect to the determination of their own individual claims.
Small claims
(3) Where an individual claim under section 24 or 25 is within the monetary jurisdiction of the Small Claims Court where the class proceeding was commenced, costs related to the claim shall be assessed as if the claim had been determined by the Small Claims Court.
[56] Against the recommendation of the Ontario Law Reform Commission, but with the recommendation of the Attorney General’s Advisory Committee on Class Actions Reform (Report, February 1990), the Legislature rejected a no-costs regime for Ontario. The normal “loser pays costs” regime applies. Under s. 31, the Class Proceedings Act, 1992, however, encourages the court to consider whether the class proceeding was a test case, raised a novel point of law or involved a matter of public interest, in which circumstances, the court has the discretion to order that there be no costs awarded to a successful defendant.
[57] Instead of employing a no-costs regime, the Ontario Legislature responded to the problem of the third economic barrier by introducing funding from the Class Proceedings Fund of the Law Foundation of Ontario. (I note here that Sun Life argues that the creation of the Fund indicates a policy choice to preclude third party funding. I also note that there are arguments to the contrary.)
[58] The Law Foundation is established under s. 53 of the Law Society Act, R.S.O. 1990, c. L.8. Among its functions is the administration of the Class Proceedings Fund, which, in turn, was established by the Legislature as part of the class proceedings regime introduced by the Class Proceedings Act, 1992.
[59] A representative plaintiff may apply to the Law Foundation to ask that the Fund be responsible for the disbursements of an action, and if the Class Proceedings Committee of the Law Foundation agrees to provide this funding, then the Law Foundation becomes liable for the defendant's costs in the proceeding should the defendant be entitled to costs and should the defendant apply to the Foundation for payment of them. A defendant who is entitled to make an application may not recover any part of the costs award from the plaintiff: Law Society Act, s. 59.4(3); Garland v. Consumers Gas, [2004] 1 S.C.R. 629.
[60] In determining whether to provide support and thus shield the representative plaintiff from costs and expose itself to a corresponding liability, the Class Proceedings Committee is directed by the Law Society Act and the related regulations to have regard to: (a) the merits of the plaintiff's case; (b) whether the plaintiff has made reasonable
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efforts to raise funds from other sources; (c) whether the plaintiff has a clear and reasonable proposal for the use of any funds awarded; (d) whether the plaintiff has appropriate financial controls to ensure that any funds awarded are spent for the purposes of the award; (e) any other matter that the Committee considers relevant; (f) the extent to which the issues in the proceeding affect the public interest; (g) the likelihood that the proceeding will be certified; and (h) the available money in the fund. See: Law Society Act, ss. 59.2-59.3; Ont. Reg. 772/92. s. 5.
[61] Pursuant to rule 12.04 of the Rules of Civil Procedure, the Law Foundation has a right to make submissions in class proceedings in which the plaintiff has received financial support from the Foundation's Class Proceedings Fund.
[62] If the representative plaintiff’s class action succeeds, then pursuant to Ont. Reg. 771/92, there is a levy payable to the Class Proceedings Fund equal to the sum of the amount of any financial support paid for disbursements and 10 per cent of the amount of the award or settlement funds to which one or more persons in the class is entitled.
[63] I have little information about the success rate for applications for funding from the Class Proceedings Fund or about the percentage of class actions supported by funding from the Fund. In his judgment in Dugal, Justice Strathy noted that from 1992 until June 30, 2010, the Committee received 96 applications for funding. (Ninety-six class actions would be a small percentage of the class actions commenced in Ontario.) Of those applications, 52 had been approved for funding, 28 had been denied or deferred and 16 had been withdrawn.
[64] The conventional wisdom is that a request for funding from the Fund is made only in a minority of cases. In the majority of cases, where funding is not sought or where funding is refused by the Committee, Class Counsel provide indemnities to the representative plaintiffs.
[65] An indemnity agreement from Class Counsel is the fourth means to address the economic barrier of an adverse costs award. That Class Counsel will agree to indemnify the representative plaintiff is now openly known, and this circumstance is typically disclosed when Class Counsel applies for court approval of their fees. Anecdotal evidence suggests that indemnity agreements are more popular than resorting to the Class Proceedings Fund.
[66] In the case at bar, no application has been made to the Class Proceedings Fund, and Kim Orr has conditionally agreed to indemnify the Plaintiffs for their potential exposure to an adverse costs award. These circumstances segue to the fifth means to address an economic barrier to a class action, i.e. third party funding.
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[67] The Plaintiffs and Class Counsel seek the support of third party funding. The motion now before the court is a prelude to a request by the Plaintiffs to approve their third party funding agreement with Bridgepoint.
[68] Third party funding agreements are a recent phenomenon in Ontario and across the world. I will have more to say about third party funding in the next section of these Reasons.
E. THE CURRENT LAW ABOUT LITIGATION FUNDING
[69] The law about the funding of litigation has an ancient history going back centuries, during which it was a crime and a civil wrong for a third party to officiously intermeddle with somebody else’s litigation. On the civil law side, the torts are known as champerty and maintenance.
[70] In Buday v. Locator of Missing Heirs Inc., (1993), 16 O.R. (3d) 257 at pp. 262-63 (C.A.), quoting Halsbury (9 Hals, 4th ed. (1974), para. 400, p. 272), the Court of Appeal described the nature of the torts as follows:
Maintenance may be defined as the giving of assistance or encouragement to one of the parties to litigation by a person who has neither an interest in the litigation nor any other motive recognized by the law as justifying his interference. Champerty is a particular kind of maintenance, namely maintenance of an action in consideration of a promise to give the maintainer a share in the proceeds or subject matter of the action.
[71] In particular, the old law frowned on a bystander obtaining a share of somebody else’s litigation, which is the tort of champerty. Champerty is a subset of the larger tort of maintenance. Thus, contingent fee agreements, where a lawyer would agree not to charge for his or her services in exchange for a share of a successful outcome, were once regarded as categorically illegal and unenforceable as champerty. In Ontario, the law of champerty and maintenance still apply under the An Act Respecting Champerty, R.S.O. 1897, c. 327, s. 1.
[72] The elements of a claim of champerty are: (1) the defendant for an improper motive (officious intermeddling) provides assistance to a litigant in a lawsuit against the plaintiff; (2) the defendant has no personal interest in the lawsuit; (3) the defendant’s assistance to one of the litigants is without justification or excuse; and, (4) the defendant shares in the spoils of the litigation: Smythers v. Armstrong (1989), 67 O.R. (2d) 753 (H.C.J.); Trendex Trading v. Credit Suisse, [1982] A.C. 679 (H.L.); Oseco Inc. v. Jansen (1989), 71 O.R. (2d) 151 (H.C.J.); George Biro Real Estate Ltd. v. Sheldon, [1965] 1 O.R. 49 (H.C.J.).
[73] It took centuries, but public policy changed, and in a progression that is still taking place around the common law world, the law developed so that supporting
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another’s litigation was not categorically illegal and, thus, contingency fees and third party funding of litigation became a possibility. The saving grace of assisting another in litigation is that the assistance might be the only means for the other to achieve access to justice.
[74] The law about third party funding differs from jurisdiction to jurisdiction because the underlying law about champerty and maintenance varies from jurisdiction to jurisdiction, and different jurisdictions take different approaches to the legality of a third party providing financial support for another’s litigation.
[75] Before going on to describe the current state of the law in Ontario, it is worth emphasizing that the law is different from the current law in Australia, the United States, and England, which all are in various stages of law reform.
[76] In particular, Ontario is unique in providing the assistance of the Class Proceedings Fund. It is also important to note that third party funding of another’s litigation can take a variety of forms. Variants of third party funding include, non-recourse loans to the litigants with the principal and interest payable from a judgment or settlement, recourse or non-recourse loans to the litigants or their lawyers with a share of the judgment or the settlement as security for the loan; financial grants in return for a share of the proceeds of a judgment or settlement; litigation insurance; legal aid-type arrangements; and agreements to indemnity or to insure the plaintiff’s cost exposure in exchange for a share of the proceeds of a judgment or settlement. Behind these forms of third party funding, there may be syndicates and investors.
[77] In the case at bar, at this juncture, the nature of the third party agreement is not known, but I foreshadow the discussion below to say that in determining whether to approve a third party agreement, it will be necessary to consider the particularities of the funding agreement. I also foreshadow to say that in my opinion, disclosure of the type and details of the third party funding to the defendant is in the interests of the administration of justice and disclosure to the defendant may help fill an adversarial void in the process of approving or refusing third party funding agreements.
[78] As for the current state of the law in Ontario about third party funding agreements, the key judgments are: McIntrye Estate v. Ontario (Attorney General) (2002), 61 O.R. (3d) 257 (C.A.), Metzler Investment GMBH v. Gildan Activewear Inc. [2009] O.J. No. 3315 (S.C.J.), and Dugal v. Manulife Financial Corp., 2011 ONSC 1785, additional reasons 2011 ONSC 3147.
[79] In McIntyre Estate v. Ontario (Attorney General), Mrs. McIntyre brought an action against Imperial Tobacco and Venturi Inc. for the alleged wrongful death of her husband. Mrs. McIntrye’s lawyers had agreed to take on the case with a contingency fee
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agreement, and Mrs. McIntrye sought a declaration that the agreement was not illegal as champerty.
[80] O’Connor, A.C.J.O, writing for the Court of Appeal concluded that contingency fee agreements are not categorically illegal because the law had developed to recognize that a person supporting another’s litigation or taking an assignment of another litigation and pursuing it might have a justifying motive or excuse. In such circumstances there would be no officious intermeddling or stirring up strife, which were necessary elements of the tort of maintenance. See also: Fredrickson v. Insurance Corporation of British Columbia (1986), 28 D.L.R. (4th) 414 (B.C.C.A.), aff'd [1988] 1 S.C.R. 1089; Trendex Trading v. Credit Suisse, supra.
[81] In the McIntyre Estate case, the Associate Chief Justice concluded, however, that it was premature to determine whether the particular contingency fee agreement was champertous. The prematurity problem arose because to determine whether an agreement was champertous, it would be necessary to examine the facts of the particular case and also the motivation of the alleged maintainer. Whether a particular agreement was champertous might not be ascertainable until the end of the litigation. In this regard, Associate Chief Justice O’Connor stated at para. 76:
When considering the propriety of the motive of a lawyer who enters into a contingency fee agreement, a court will be concerned with the nature and the amount of the fees to be paid to the lawyer in the event of success. One of the originating policies in forming the common law of champerty was the protection of vulnerable litigants. A fee agreement that so over-compensates a lawyer such that it is unreasonable or unfair to the client is an agreement with an improper purpose - i.e., taking advantage of the client.
[82] In Metzler Investment GMBH v. Gildan Activewear Inc., supra, Justice Leitch, dismissed a motion for approval of a third party funding agreement between the plaintiffs and Claims Funding International PLC (“CFI”), an Irish corporation. In this case, Metzler Investments sued Gildan Activewear because of an alleged misrepresentation that affected the value of Gildan’s shares in the secondary market. Before certification, Metzler Investments voluntarily sought approval of the third party funding agreement with CFI.
[83] In Metzler Investments, the terms of the proposed third party funding agreement were that CFI agreed to pay any adverse costs award in exchange for an uncapped 7 per cent share of any recovery in the litigation. CFI acknowledged that Class Counsel’s duties were to the plaintiffs and not to CFI, and the plaintiffs promised that they would conduct the proceeding in a manner that avoided costs and delay and they promised to provide full and honest instructions to Class Counsel.
[84] Justice Leitch ruled that before certification, the court did not have jurisdiction to make a declaratory order binding the putative class members to the terms of the third
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party funding agreement. Dealing only with the situation as between the plaintiffs and CFI, Justice Leitch ruled that a third party funding agreement was not categorically champertous and thus was capable of being approved. However, applying the rationale of the McIntrye Estate case, she declined to approve the third party funding agreement, because until the outcome of the litigation was known, it could not be determined whether a 7 per cent share of the recovery was fair and reasonable.
[85] Dugal v. Manulife Financial Corp. was the first case in Ontario in which a third party funding agreement was approved. In this case, Mark Dugal and the other plaintiffs sued Manulife because of an alleged misrepresentation that artificially inflated the value of its securities. Before certification, Mr. Dugal applied for approval of a third party funding agreement with Claims Funding International PLC (“CFI”), the same funder that had failed to obtain approval in Metzler Investments.
[86] Under the proposed third party funding agreement in Dugal, CFI agreed to pay $50,000 for disbursements and to indemnify the plaintiffs if there was an adverse costs award. In return, it was to receive a 7 per cent share of the proceeds of any recovery in the litigation to a maximum of $5 million before certification and to a maximum of $10 million after certification. CFI acknowledged that Class Counsel’s duties were to the plaintiffs and not CFI, and the plaintiffs promised that they would conduct the proceeding in a manner that avoided costs and delay and they promised to provide full and honest instructions to Class Counsel. CFI was entitled to terminate only if the plaintiffs breached their obligations under the agreement. The agreement was subject to court approval.
[87] In Dugal, Justice Strathy addressed the defendant Manulife’s argument that the third party agreement was champertous. Following, the Court of Appeal’s decision in McIntrye Estate v. Ontario (Attorney General), supra, Justice Strathy concluded that third party funding agreements were not categorically or necessarily champertous and that there were reasons to approve the third party funding agreement between the plaintiffs and CFI, including the factors that the funding agreement would promote access to justice and the agreement did not interfere with the plaintiffs’ control of the litigation. Problems with securing the possible indemnity and on what information could be disclosed to the funder could be and were addressed, and, therefore, Justice Strathy approved the third party funding agreement.
[88] Not following Metlzer Investments, supra, and relying on s. 12 of the Class Proceedings Act, 1992, the court’s jurisdiction to make declaratory orders, the court’s inherent jurisdiction, and my decision in Fantl v. Transamerica Life Canada, [2008] O.J. No. 1536, aff’d [2008] O.J. No. 4928, aff’d 2009 ONCA 377, Justice Strathy concluded that before certification, the court has the jurisdiction to make an order
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approving a third party funding agreement that the ruling would bind the putative class members.
[89] I agree with Justice Strathy’s ruling, but I would take it several steps further by ruling that the court’s jurisdiction over the management and administration of proposed and certified class actions entails that a third party funding agreement must be promptly disclosed to the court and the agreement cannot come into force without court approval. Third party funding of a class proceeding must be transparent and it must be reviewed in order to ensure that there are no abuses or interference with the administration of justice.
[90] The propriety of third party funding agreements is controversial and problematic, and, in my opinion. at a minimum, they should not be allowed to operate clandestinely. In a recent New York Times news article, a third party funder in the United States was reported to have made $32 million investing in others’ litigation, which it indicated was a return of 91 per cent on its investment. See “Looking to Make a Profit on Lawsuits, Firms Invest in Them,” The New York Times, April 30, 2012. There is a legitimate concern that if not regulated, third party funding might subvert the public policy purposes of class proceedings.
[91] In the case at bar, the Plaintiffs voluntarily sought court approval before the certification of this proposed class action. Had they not done so, the third party funding agreement would not have been disclosed until the fee approval stage of the action was reached or perhaps not until the defendants made demand for payment of a costs award and the plaintiffs needed to be indemnified. In future cases, disclosure of a third party agreement should be mandatory.
[92] In making these rulings, I do not agree with the ruling in Metzler Investment GMBH v. Gildan Activewear Inc., that s. 12 of the Class Proceedings Act, 1992 is not broad enough to authorize the court to make an approval order binding on class members before certification.
[93] In this regard, it should be noted that class members are already protected from exposure to an adverse costs award. The third party funding agreement is of most immediate interest and concern to the proposed representative plaintiffs and Class Counsel, and the court has jurisdiction to make an order binding on them. Generally speaking, it would seem that class members would support approval for third party funding, when without the funding, there might be no class action and perhaps no other route to access to justice. I concede that class members would be affected by a third party funding agreement that adversely affected the ability of the representative plaintiffs to control and direct the class action, but that concern should be addressed as an aspect of the approval hearing. Putative class members are also concerned about the
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extent of the levy of the third party funder, which may be greater than the levy of the Class Proceedings Fund, but, once again, it would be for the court to determine whether the third party funding agreement is fair to the persons who would be bound by it. Thus, I do not see any reason that would justify postponing making a binding decision until after certification.
[94] In this last regard, I agree with Justice Strathy’s comments in Dugal, supra, at para. 17, where he stated:
To postpone the decision to post-certification, when the views of class members can be sought, could very well spell the end of this proceeding, because the plaintiffs cannot withstand an adverse costs award on certification. In my view, exercising the Court's supervisory jurisdiction over the proceeding, I am entitled to put myself in the shoes of prospective class members and ask whether the proposed agreement is fair and reasonable.
[95] To conclude this part of the analysis, the current state of the law in Ontario is that third party funding agreements are not categorically illegal but they may be. In ruling on the legality of third party agreements, Ontario courts have considered some of the issues that might be raised to challenge a third party funding agreement but there is much unexplored territory. I will mention some of the unexplored issues below. Whether and the extent to which third party funding is permissible should be regarded as an unsettled issue and a work in progress.
F. ANALYSIS
1. Introduction and Preliminary Points
[96] With this background, it is now possible to address the Plaintiffs’ motion that seeks orders: (a) that a motion for approval of a third party financing and indemnity agreement be heard without notice to Sun Life; (b) that the hearing of the motion be closed to the public; and (c) that the documents for the motion be sealed.
[97] I will begin the analysis by noting that the Plaintiffs rely on the juridical fact that the Alberta Court of the Queen’s Bench and the Nova Scotia Supreme Court have both heard and approved third party litigation funding arrangements ex parte. See MacQueen v. Sydney Steel Corp., Hfx No. 218010 (Murphy, J., N.S.S.C.) October 19, 2010; Hobshawn v. ATCO Gas and Pipelines Ltd., Action No. 0101-04999 (Lovecchio, J., Alta. Q.B.) May 14, 2009. These decisions, however, are not helpful because there are no published reasons for the decisions.
[98] Next, the Plaintiffs rely on Garland v. Consumers’ Gas Company Limited, [1995] O.J. No. 997 at paras. 41-42 (Gen. Div.), aff’d [1996] O.J. No. 3162 (C.A.), where Justice Winkler, as he then was, held that on an application for approval of
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funding from the Class Proceedings Fund, it is for the plaintiff to determine whether the defendant is given notice of the application.
[99] Justice Winkler explained that the rationale for this approach is to prevent a defendant from gaining an advantage in the proceeding from knowledge that the plaintiff has been denied funding. Justice Winkler accepted, however, that with the plaintiff’s consent, the defendant could participate so that the Committee might obtain the defendant’s analysis of the claim and its defence to it, so as to properly assess the merits of the case, which is a factor in its determination of whether to approve funding for the class action.
[100] While, as appears from the discussion above and below, the existence and the role played by the Ontario Class Proceedings Fund is a relevant consideration to the issues of whether or not the Superior Court should approve third party funding. I do not find the Garland decision helpful in determining the issues I must decide on this motion.
[101] In the case of an application to the Class Proceedings Committee, the participation of the defendant is possible and if the application is granted, the defendant will be advised and become aware of the precise nature of the statutorily-prescribed support being offered by the Fund. The defendant will also be aware that the Fund has no other role to play in the litigation.
[102] In contrast, in the case at bar, if I hear the funding application in camera and approve the arrangement, Sun Life may be able to intuit that the funding has been granted, but Sun Life will have no idea about the nature of the support or the role played by the unnamed third party funder. Further, there is no issue about the propriety of the support provided by the Fund but there well may be once the details of the third party agreement are revealed. The Garland decision does not address the circumstances of the case at bar.
2. Notice
[103] The analysis may continue with the dispute between the parties about whether Sun Life is entitled to be given notice and to participate in the funding approval motion. The precise issue is whether Sun Life is “affected” by the motion for approval of the third party funding agreement.
[104] It is a principle of natural justice that a party be given notice and have an opportunity to be heard in proceedings that affect his or her interests, and it is a fundamental principle in the administration of justice that court proceedings are public proceedings.
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[105] Generally speaking, the circumstances in which a court will accept submissions ex parte are exceptional and limited to situations in which the delay associated with notice would result in harm or where there is a fear that the other party will act improperly or irrevocably if notice were given: Ruby v. Canada (Solicitor General), [2004] 4 S.C.R. 1 at para. 25.
[106] As noted above, the Plaintiffs submit that Sun Life is not “affected” by whether or not the Plaintiffs are supported in some way by third party funding. Sun Life disagrees and submits that it is affected by the prospect of third party funding being approved by the court. Sun Life states that it has an interest in ensuring that: (a) the third party funder is financially capable of honouring its commitments; (b) that the funder’s commitment to pay an adverse costs awards is directly enforceable by Sun Life; (c) that the implied undertaking that protects Sun Life’s confidential information applies to the funder; and (d) that the integrity of the litigation process and the administration of justice is maintained.
[107] I agree that the Defendant is affected by the motion for third party funding. Although the point was not contested, Justice Strathy was of a similar view in Dugal v. Manulife Financial Corp., supra, at para. 16, as was Justice Leitch in Metzler Investment GMBH v. Gildan Activewear Inc. supra, at para. 3.
[108] In addition to being affected by the motion for third party funding and, therefore, normally entitled to participate in the process, it is my view that as a policy matter a defendant’s participation would be useful and should be permitted. As demonstrated by the immediate case, a defendant might raise issues that should be addressed by the court. In the case at bar, Sun Life submitted that a third party funding agreement might raise the following questions, for which it would be both necessary and helpful to have Sun Life’s submissions:
• Whether the third party funding agreement was champertous or otherwise contrary to public policy.
• Whether the third party agreement might be “legal expense insurance,” in which case it would be regulated under the Insurance Act, R.S.O. 1990, c 1.8, and the court would have to consider whether the agreement complied with the Act. The court would also have to consider whether notice of the motion should be given to the regulator, the Financial Services Commission of Ontario.
• Whether the third party funding agreement involved an investment scheme, in which case it might be a “security” subject to compliance with the Ontario Securities Act, R.S.O. 1990, c. S.5.
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• Whether the third party funding agreement might be illegal under s. 347 of the Criminal Code, R.S.C. 1985, c. C. 46 for imposing a criminal rate of interest.
[109] There are other issues associated with third party funding agreements that may need to be addressed. There is the concern that the third party funder may compromise the lawyer and client relationship and the lawyer’s duties of loyalty and confidentiality or impair the lawyer’s professional judgment and carriage of the litigation on behalf of the client. Thus, it may be necessary to review as Justice Strathy did in Dugal, supra, and as Justice Leitch did in Metzler Investment, supra, the precise role of the third party funder in the litigation.
[110] If any of these issues actually were aspects of the third party funding agreement with Bridgepoint, in my opinion, it would be useful to have full argument from both parties. If Sun Life were not present, it might be necessary to appoint an amicus to fill an adversarial void and to assist the court in making a determination.
[111] I observe that the above issues are largely antithetical to third party funding, but it is conceivable that a defendant might support third party funding, since it may be the ultimate beneficiary of it. Thus, it would also be informative for the court to know why a defendant supports or does not oppose the third party funding.
[112] Therefore, unless the Plaintiffs make out a case for protecting solicitor-client privilege or make out some other public policy argument, Sun Life should be given notice of the third party funding motion, and it should also receive the motion material to be relied on for the motion, and it should be permitted to participate at the hearing.
[113] I conclude this part of the analysis by repeating that the defendants participated in the funding motions in Dugal v. Manulife Financial Corp., supra, and Metzler Investment GMBH v. Gildan Activewear Inc. supra.
3. Third Party Funding Agreements and Solicitor- Client Privilege
[114] Given the conclusion that Sun Life is affected by the motion for approval of third party funding, the next issue is whether there are countervailing reasons that would justify the orders being sought, which orders would exclude Sun Life and the public from the third party funding motion. This issue brings the analysis to the relationship between third party funding agreements and solicitor-client privilege.
[115] In Canada, solicitor-client privilege has become a constitutionally protected substantive rule of law. See: Canada v. Solosky, [1980] 1 S.C.R. 821 (S.C.C.); Descôteaux v. Mierzwinski, [1982] 1 S.C.R. 860; R. v. McClure, [2001] 1 S.C.R. 445; Lavellee, Rackel & Heintz v. Canada, 2002 SCC 61.
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[116] The Plaintiffs argue that disclosure of their third party funding agreement with Bridgepoint would compromise solicitor-client privilege, litigation privilege, or common interest privilege. There is some support in the international case law that supports the Plaintiffs’ argument.
[117] In Australia, in Re Global Medical Imaging Management Limited (in liquidation), [2001] NSWSC 476 at paras. 7-8 (N.S.W.S.C.), the New South Wales Supreme Court concluded that funding agreements are privileged and should not be disclosed to the opponent. The Court stated:
To deny legal privilege to a funding agreement of this sort would fail to give proper weight to its inextricable connection with the very subject matter of the legal advice that might be given and the nature of the professional legal services to be rendered. It has the potential to reveal the litigant’s likely legal strategy. The funding agreement in a literal and substantive sense, fulfils the purpose of providing legal services in terms not only of the overall capacity to have them at all, but also their availability at critical junctures in the case. While it may not reveal the content of legal advice, it reveals the confidential circumstances of its availability and throws oblique light on the confidential circumstances to which the advice is directed. One could, for example, infer from a funding agreement the likelihood of tactical advice being given of a particular kind at different stages of the litigation or, for that matter, of the likelihood of an appeal being advised or not advised.
[118] There are, however, three better arguments that at least in the context of class actions, retainers and associated third party funding agreements, are not privileged.
[119] The first argument is the simple argument that third party funding agreements are not privileged.
[120] In Roth v. Alberta (Minister of Human Resources and Employment), 2005 ABQB 505, in the context of a motion to proceed in camera with respect to a contingency agreement, Justice Slatter commented that the privilege over the retainer agreement in a class proceeding is more illusory than real. In remarks that are apt for Ontario, Justice Slatter stated at paras. 8 and 9:
8. The presumptive rule is that Canadian court proceedings are held in public, and an order for an in camera hearing is extraordinary... It is true that the Supreme Court of Canada has emphasized the importance of solicitor and client privilege, and the preservation of privilege might well be one reason to close a courtroom. However, in this situation one must be practical about the efficacy of any privilege, and the effect that disclosure of the information would have on the interests of the plaintiff. Section 20 of the Class Proceedings Act, 1992, requires that notice of certification be given to all members of the class. Section 20(6)(e) provides that the notice must include a summary of any agreements respecting fees and disbursements. In addition, any member of the class who asked to see a copy of the contingency agreement would likely be entitled to a copy. A solicitor cannot keep privileged material away from the client himself. Since the form of notice under the Act would be set by the Court, after hearing submissions from both counsel, and since the notice must be sufficiently detailed to allow class members to make an informed choice as to whether they will opt out, it is inevitable that the defendants in a class proceeding will
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discover the general contents of the contingency agreement. In this respect, the privilege over the retainer agreement in a class proceeding is more illusory than real.
9. Further, disclosure of the contents of the privileged contingency agreement will rarely prejudice the interests of the plaintiff. The contingency agreement would not usually disclose any of the tactics of the plaintiff nor would it reveal any privileged information about counsel's assessments of the merits. As a practical matter, while the retainer agreement is confidential, disclosure of its contents is unlikely to substantively prejudice the interests of the plaintiff. In all of the circumstances, there is little point in holding the hearings in camera, or of sealing the entire court record. However, it is appropriate to seal the affidavits of the two Plaintiffs sworn May 15, 2005 deposing to the reasonableness of the contingency agreement, as they do contain some sensitive information.
[121] In Fairview Donut Inc. v. The TDL Group Corp., 2012 ONSC 152, in the context of a certification motion, Justice Strathy held that disclosing details of who is funding the class action and on what terms does not involve solicitor-client communications. At paras. 360-363, Justice Strathy stated :
360. The plaintiffs rely on Descoteaux v. Mierzwinski, ... which deals with the confidentiality of solicitor and client communications and Stevens v. Canada (Prime Minister)... which dealt with the question of whether a lawyer's billing records are protected by solicitor-client privilege. The issue in this case is not about communications between the plaintiff and their counsel - it is about who is paying for the lawsuit and whether a third party is providing an indemnity for fees. The answer to that question does not require the disclosure of solicitor-client communications.
361. In my view, a Court being asked to certify a class proceeding and to appoint a representative of the class is entitled to know whether some other party is funding the litigation and, if so, who is doing so and on what terms. The answers go to the independence and motivations of the representative plaintiff as well as the ability of the representative plaintiff to see the action through to completion. It will be relevant for the Court to know whether the third party has an interest in the litigation that is or could be divergent from the interests of the representative plaintiff or the class. In the context of third party funding arrangements, the Court has been particularly concerned to know the details of the arrangements with the third party to ensure that the representative plaintiff, and not the third party, is actually calling the shots: Dugal v. Manulife Financial Corp., ... Metzler Investment GMBH v. Gildan Activewear Inc. ....
362. Answering the question "who has control of the litigation" or "who is instructing counsel" may not elicit a full answer to the real question, which is whether some behind-the-scenes party is financing or promoting the litigation, and if so, whether there are any strings attached.
363. If it was established that the third party was not a member of the class and was supporting the litigation financially for collateral reasons, that alone might be reason to question the independence and suitability of the representative plaintiff.
[122] I agree with and would adopt Justice Strathy’s comments for the case at bar.
[123] The second argument that there is no privilege attached to the terms of a third party funding agreement is the argument that any presumption that a third party funding agreement contains protected communications has been rebutted.
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[124] In order to understand this second argument for the conclusion that the third party funding agreement is not privileged, it is necessary to first understand a very intricate principle of the law of privilege that emerged from the Supreme Court of Canada’s decision in Maranda v. Richler, 2003 SCC 67 and the treatment of that principle by the Ontario Court of Appeal in Ontario (Attorney General) v. Ontario (Assistant Information and Privacy Commissioner) [2005] O.J. No. 941 (C.A.), and recently by the British Court of Appeal in Donell v. GJB Enterprises Inc., 2012 BCCA 135.
[125] In Maranda, which arose in the context of criminal law proceedings about a search warrant served on a law firm, the Supreme Court held that the amount a client pays to his or her lawyer for legal fees is presumptively covered by solicitor-client privilege.
[126] From Maranda, given the connection between a third party funding agreement, particularly some variants of it, to legal fees and the lawyer’s retainer, it could also be argued that a third party funding agreement is presumptively covered by solicitor- client privilege. The Plaintiffs’ argument in the case at bar is to similar effect.
[127] However, as pointed out by the Ontario Court of Appeal in Ontario (Attorney General) v. Ontario (Assistant Information and Privacy Commissioner), there is only a presumption of privilege and the presumption can be rebutted. The facts of the case were that as a result of the requests of two journalists, the Information and Privacy Commissioner ordered the Attorney General to disclose how much had been paid to two lawyers who had acted for intervenors in a certain criminal proceedings and to four lawyers who had acted on Paul Bernardo’s appeal from his murder convictions. Relying on Maranda, the Attorney General argued that the information about the legal fees was privileged, and he sought judicial review of the Commissioner’s order requiring the disclosure of the information about the amount of the billings.
[128] Affirming a decision of the Divisional Court, the Court of Appeal held that the presumption of privilege associated with the information the journalists were seeking was rebuttable and the presumption had been rebutted. For present purposes, what is significant is the Court of Appeal’s ruling at para. 9 of its judgment that “The presumption will be rebutted if it is determined that disclosure of the amount paid will not violate the confidentiality of the solicitor-client relationship by revealing directly or indirectly any communication protected by the privilege.” At paras. 12 and 13 of the judgment, the Court stated:
12. The presumption will be rebutted if there is no reasonable possibility that disclosure of the amount of the fees paid will directly or indirectly reveal any communication protected by the privilege. …. If there is a reasonable possibility that the assiduous inquirer, aware of background information available to the public, could use the information requested concerning the amount of fees paid to deduce or otherwise acquire communications protected by the privilege, then the information is protected by the client/solicitor privilege and cannot be disclosed. ….
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13. We see no reasonable possibility that any client/solicitor communication could be revealed to anyone by the information that the IPC ordered disclosed pursuant to the two requests in issue on this appeal. The only thing that the assiduous reader could glean from the information would be a rough estimate of the total number of hours spent by the solicitors on behalf of their clients. In some circumstances, this information might somehow reveal client/solicitor communications. We see no realistic possibility that it can do so in this case. For example, having regard to the information ordered disclosed in PO-1952, we see no possibility that an educated guess as to the amount of hours spent by the lawyers on the appeal could somehow reveal anything about the communications between Bernardo and his lawyers concerning the appeal.
[129] In the case at bar, I cannot be an assiduous inquirer with respect to the third party funding agreement, because I have not yet seen the agreement, but I can say that I see no reasonable possibility that any genuinely solicitor-client communication need be revealed as a part of any third party funding agreement. Thus, there is no privileged information.
[130] Put differently, if a third party funding agreement contained information that disclosed counsel’s legal opinion about the merits of the litigation or disclosed how counsel proposed to carry out the litigation beyond what might be disclosed in the litigation plan that would be disclosed for a certification motion, then it was both unnecessary and wrong to include that information. Including the information is unnecessary because it does not have to be included in order to obtain court approval, as is evidenced by the Dugal case. Including the information is wrong or improper because it would mean that the third party had assumed control of the client’s litigation, which is improper and would cause the court to reject the third party funding agreement.
[131] In Donell v. GJB Enterprises Inc., supra, Mr. Donell was a California court-appointed receiver of GJB Enterprises, which had been operated by its principal Gerald Berke as a Ponzi scheme. Mr. Berke and his wife, who denied knowledge of the Ponzi scheme, moved to British Columbia. Mr. Donell, who was attempting to trace Mr. Berke’s ill-gotten gains, brought an application in the British Columbia Supreme Court for a declaration that certain files and documents in the possession of the Berke’s British Columbia lawyers were not privileged and should be disclosed. The application was dismissed, and Mr. Donell appealed, but he limited his appeal to the law firm’s trust ledgers. The Court of Appeal allowed the appeal in part.
[132] Justice Chiasson (Justice Neilson concurring, Justice K.J. Smith dissenting) reviewed the law firm’s trust ledgers and scrutinized them for privileged material. The majority concluded that the trust ledger entries relating to a real estate transaction, of which all parties were aware, were not privileged and four particular entries relating to money management did not arise from the solicitor-client relationship and were producible. The rest of the entries were irrelevant.
[133] At para. 59 of his judgment, after a detailed analysis of Maranda and the case law in Ontario, including Ontario (Attorney General) v. Ontario (Assistant Information and Privacy Commissioner), supra, Justice Chiasson summarized the applicable law as follows:
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59. In summary, in my view:
1. at a minimum, Maranda establishes that lawyers' bills, in the criminal law context, are presumptively subject to solicitor-client privilege;
2. this presumption flows from the connection between lawyers' bills and the nature of the relationship between lawyers and clients; the account reflects work done on behalf of the client which involves communications that are privileged;
3. the presumption may be rebutted if it is established that there is no reasonable possibility that disclosure will directly or indirectly reveal any communications protected by privilege;
4. Maranda did not do away with the distinction between communications, which are privileged, and facts, which are not;
5. other financial records of lawyers are not presumptively subject to solicitor-client privilege insofar as they merely represent records of actions or facts, but they should not be produced automatically solely for that reason;
6. Maranda mandates that it is necessary to consider such records in order to determine whether they arise out of the solicitor-client relationship and what transpires within it, that is, communications to obtain legal advice;
7. if it is concluded that the records do arise out of that relationship and what transpires within it, they are presumed to be privileged, but the privilege can be re-butted and the document produced if it is established that production will not permit the deduction or acquisition of communications protected by solicitor-client privilege.
[134] Thus, the majority of the British Columbia Court of Appeal adopted the approach of the Ontario Court of Appeal in Ontario (Attorney General) v. Ontario (Assistant Information and Privacy Commissioner). Lawyers bills are presumptively subject to solicitor-client privilege, because they may reflect communications that are privileged, but the presumption may be rebutted. Other financial records are not presumptively subject to solicitor-client privilege, and these records would not be privileged if they represented records of actions or facts because there is a distinction between client communications with a lawyer, which are privileged, and facts about client conduct or client activities, which are not privileged.
[135] In effect, the majority of the British Columbia Court of Appeal would divide the client’s documents and related material in the possession of a lawyer into two classes: (1) documents presumptively privileged; and (2) documents independent of the communication of legal advice and not presumptively privileged.
[136] Applying the approach of Donell v. GJB Enterprises Inc., supra, to the case at bar, yields the conclusion that either the third party funding agreement is a document independent of the communication of legal advice and not privileged or the presumption of privilege has been rebutted.
[137] The third argument for the conclusion that there is no privilege attached to the terms of a third party funding agreement is that the privilege is waived.
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[138] In S. & K. Processors Ltd v. Campbell Ave. Herring Producers Ltd., (1983), 35 C.P.C. 146 (B.C.S.C.) at paras. 6, 10, Justice McLachlin, as she then was, described when privilege is waived as follows:
6. Waiver of privilege is ordinarily established were it is shown that the possessor of the privilege: (1) knows of the existence of the privilege; and (2) voluntarily evinces an intention to waive that privilege. However, waiver may also occur in the absence of an intention to waive, where fairness and consistency so require. Thus, waiver of privilege as to part of a communication will be held to be waiver as to the entire communication. Similarly, where a litigant relies on legal advice as an element of his claim or defence, the privilege which would otherwise attach to that advice is lost: Hunter v. Rogers, [1982] 2 W.W.R. 189.”
10. … In Rogers v. Hunter, the intention to partially waive was inferred from the Defendant’s act of pleading reliance on legal advice. In Harrich v. Stamp (1979), 27 O.R. (2d) 395 (C.A.), it was inferred from the accused’s reliance on alleged inadequate legal advice in seeking to explain why he had pleaded guilty to a charge of dangerous driving. In both cases, the plaintiff chose to raise the issue. Having raised it, he could not in fairness be permitted to use privilege to prevent his opponent exploring its validity.”
[139] It is arguable that when a plaintiff applies for third party funding, among other things, he or she puts in issue who is actually controlling the litigation and whether the third party funding agreement is champertous or in compliance with any regulatory regime that might apply. The terms of the agreement may have implications to whether the representative plaintiff and Class Counsel have conflicts of interest. In these circumstances, fairness requires that any privilege associated with the terms of the third party funding agreement be treated as waived.
[140] In my opinion, a defendant is affected by a third party funding agreement and fairness demands that any privilege associated with the agreement is waived. This conclusion is also consistent with the practice of disclosing the support of the Class Proceedings Fund to the defendant.
[141] Thus, on grounds of precedent, policy, and fairness, I prefer the Canadian arguments to the Australian position, which leads to the conclusion that that a third party funding agreement is not privileged or if it is privileged, then the privilege is waived.
[142] But I add the observation that because there is no privilege in the third party funding agreement, then as a matter of best practices, an applicant for third party funding should not include extraneous and otherwise privileged information in a third party funding agreement.
[143] In the next section, I will explain why the conclusion that there is no privilege in the third party funding agreement is dispositive of this motion, yielding the ultimate conclusion that the motion should be dismissed.
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4. The Open Court Principle
[144] The analysis finally comes to the heart of the Plaintiffs’ motion, which is whether the procedure for a motion for third party funding should depart from the open court principle.
[145] With certain exceptions, the Rules and the Courts of Justice Act provide that all court hearings shall be open to the public. See rule 37.11 and Courts of Justice Act, R.S.O. 1990, c. C.43, s. 135. The Courts of Justice Act provides that the court may exclude the public where the possibility of serious harm or injustice to any person justifies a departure from the general principle that court hearings should be open to the public.
[146] The Supreme Court of Canada and other courts, including the Ontario Court of Appeal have developed a test for determining when a court may order a publication ban, seal documents, or proceed in camera. See: R. Mentuck, 2001 SCC 76; Sierra Club of Canada v. Canada, [2002] 2 S.C.R. 522; and M.E.H. v. Williams, 2012 ONCA 35.
[147] Recently, in Williams at para. 22, the Court of Appeal described the two-part test as follows:
A publication ban should only be ordered when:
(a) such an order is necessary in order to prevent a serious risk to the proper administration of justice because reasonably alternative measures will not prevent the risk; and
(b) the salutary effects of the publication ban outweigh the deleterious effects on the rights and interests of the parties and the public, including the effects on the right to free expression, the right of the accused to a fair and public trial, and the efficacy of the administration of justice.
[148] The two-part test for a publication ban etc. may itself be broken down into three elements; (1) there is a serious risk to the proper administration of justice or another matter of public interest; (2) there are no reasonable means to prevent the serious risk other than a court order negating or restricting the open court principle; (3) and the salutary effects of the court’s order would outweigh its deleterious effects on the rights and interests of the parties and the public.
[149] In the case at bar, Sun Life concedes that denying access to justice would be a serious risk to the proper administration of justice, but it submits that there is no evidence that this action will not proceed in the absence of third party funding and thus there is no evidence that access to justice is at risk. Sun Life submits that the Plaintiffs have not adduced any evidence that they will be or have been unable to obtain funding
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from the Class Proceedings Fund or that the third party funder will not provide funding if the Plaintiffs' motion to approve the third party funding agreement is heard in open court. Sun Life, therefore, submits that the motion should be dismissed because, on the evidence adduced, the Plaintiffs have not satisfied the “necessity” elements of the two-part.
[150] There is considerable merit in Sun Life’s evidentiary argument, but I will not decide this motion on an evidentiary basis, because, as noted above, I am prepared to assume that the gaps in the evidence have been filled based on the submissions made during oral argument. Further, since, I would have allowed the Plaintiffs to reapply based on better evidence, I am prepared to accept that the Plaintiffs cannot obtain funding from the Class Proceedings Fund and that Bridgepoint will not provide funding if the Plaintiffs' motion to approve the third party funding agreement is heard in open court.
[151] With those assumptions, I conclude, nevertheless, that the Plaintiffs have failed to establish each of the three elements of the test for an order restricting the open court principle.
[152] With respect to the “serious risk” or necessity element of the test for a publication ban, etc., for the reasons described above, I conclude that there is no risk to the important values of solicitor-client privilege or litigation privilege or common interest privilege because the information provided by disclosing the third party funding agreement is not privileged or, if it is privileged, then the privilege is waived by applying for third party funding.
[153] I also conclude that there is no serious risk to access to justice. Given that there is no risk to solicitor-client privilege, there is an audacious quality to the plaintiffs’ argument that access to justice is at risk. If access to justice were at risk, then it is a self-inflicted risk. It is the Plaintiffs and Bridgepoint that would impose the condition that the third party funding application will be withdrawn if the agreement is disclosed to the Defendant and to the public. From Dugal v. Manulife Financial Corp., supra, and Metzler Investment GMBH v. Gildan Activewear Inc., it is known that there are other third party funders who would not impose this pre-condition.
[154] In any event, the Plaintiffs do not have an unfettered right to access justice unencumbered by exposure to costs. All litigants must abide by the rules that administer access to justice, and no litigant is entitled as of right to have any economic barriers to access to justice removed. By itself, the desirability or the necessity of a class action does not entitle a plaintiff to immunity from the costs consequences of litigation. If that were the case, Ontario would have adopted a no-costs regime. However, litigation in Ontario including class actions comes with exposure to an adverse costs award. To
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obtain access to justice, the Plaintiffs must play by the rules of the administration of justice, and the rules to access to justice normally require that a Plaintiff disclose his or her case for relief to the defendant in open court.
[155] As for Bridgepoint, if it does not wish to disclose its pecuniary interest in the litigation, then Bridgepoint should do its business in another less transparent or more disinterested forum.
[156] Further, if I am incorrect in concluding that there is no serious risk to the public interest or to the administration of justice, I conclude that it is not the case that there are no reasonable means to prevent the serious risk. In the next section of these reasons, I will describe those reasonable means.
[157] Further still, if I am incorrect in concluding that the first two elements of the three-part test for a publication ban, etc. have not been satisfied, the third element is not satisfied.
[158] In my opinion, an order restricting or qualifying the open court principle would not outweigh its deleterious effects on the rights and interests of the parties and the public. In my opinion, for the reasons expressed earlier, Sun Life is affected by the motion, possibly adversely affected. And, in any event, the participation of Sun Life would be helpful in determining whether to approve or refuse the third party funding application.
[159] For the above reasons, I conclude that the two-part test for restricting the opine court principle has not been satisfied and, therefore, the Plaintiffs’ motion should be dismissed.
G. PROCEDURE FOR A THIRD PARTY FUNDING MOTION
[160] The above analysis shows that the disclosure of the third party funding agreement to the defendant in open court and the participation of the defendant in the funding motion is all of necessary, fair, and helpful to the administration of justice.
[161] It does not follow, however, that a funding motion should be treated in the same way as other motions. The defendant is affected, and although the defendant should be allowed to protect its own proper interests, there are aspects of a funding application that should be none of the defendant’s business. For instance, while the defendant may have an interest in ensuring that an adverse costs award will actually be paid to it, it is no business of the defendant to inquire into how the Plaintiffs would propose to use the funding for the purposes of the litigation. In this regard, it may be noted that a defendant may apply to the Class Proceedings Committee for the payment of the costs award but
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the Defendant does not have a right to appear before the Committee and oppose the conferral of funding.
[162] It will take some experience before the parameters of opposition to a motion for approval can be articulated, but because the defendant’s interest is not open-ended, the normal rules about motions may need to be adjusted. In class proceedings, the court has the authority to make these adjustments pursuant to s. 12 of the Class Proceedings Act, 1992, which, as noted above, grants the court a discretion to make orders respecting the conduct of a class proceeding to ensure its fair and expeditious determination.
[163] It is early days for third party funding motions, and at present time, there is little experience to guide how the procedure should be shaped. For the case at bar, I direct the following procedure:
• 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 wish to proceed with their motion for approval, they must serve a copy of the third party funding agreement covered by an affidavit from one or more of the Plaintiffs setting out the reasons why third party funding 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.
• On the motion for third party funding, the parties shall deliver factums.
H. CONCLUSION
[164] For the above reasons, I dismiss the Plaintiffs’ motion.
[165] Given the novelty and the importance of the issues, there will be no order as to costs.
_____________________ Perell, J.
Released: May 7, 2012
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CITATION: Fehr v. Sun Life Assurance Company of Canada 2012 ONSC 2715 COURT FILE NO.: 10-CV-411183 CP
DATE: May 7, 2012
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN: Eldon Fehr, Angela Watters, Gaetan
Laurier, Leslie Michael Lucas and Joseph (Yung Yub) Kang
Plaintiffs
- and -
Sun Life Assurance Company of Canada
Defendant
__________________________________
REASONS FOR DECISION __________________________________
Perell, J.
Released: May 7, 2012.
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