In the past few years, a new player has come onto the class action scene: the third party funder. Prior to 2013, there were two Ontario class proceedings where the court approved third party funding arrangements: Dugal v. Manulife Financial Corporation and The Trustees of Labourers’ Pension Fund of Central and Eastern Canada v. Sino-Forest Corporation. In Fehr v. Sun Life Assurance Company of Canada, the plaintiffs sought an order providing that a motion for approval of third party funding be heard without notice to the defendants and closed to the public. Justice Perrell affirmed that the court must approve a third-party funding arrangement prior to certification.

In 2013, third party funding was approved in a third Ontario class action. In Bayens v. Kinross Gold Corporation, Justice Perrell continued the discussion he began in Fehr and reaffirmed that third party funding arrangements may be permissible with court approval. The key to third party funding approval is transparency. As we discussed in an earlier post, the Court looks at certain factors to assess the third party funding arrangement.

Defendants Have Standing Too

In the spirit of such transparency, defendants have been afforded standing in Ontario to challenge third party funding arrangements. Similar standing has been awarded in British Columbia in Stanway v. Wyeth Canada Inc. Indeed, defendants may be entitled to costs as a result of having to defend such motions. In Hodge v. Neinstein, the plaintiff sought approval of third-party funding. In responding to the motion, the defendants then cross-examined the plaintiff’s counsel on her affidavit regarding the third-party funder’s financial information. As a result of the cross-examination, the third-party funder withdrew its commitment to provide funding and the motion for approval was abandoned.

The court awarded the defendants $7,000 in costs for the abandoned motion. In doing so, it observed that “[T]he defendant or respondent has a right to resist third party funding of a class action” and further held that “exposure to costs in a funding motion will encourage parties to perform the necessary due diligence to satisfy the court that the third party funding agreement should be approved or disapproved.”

The New Procedural Battleground

The requirement that a plaintiff obtain court approval of third party funding and the defendant’s right to oppose a plaintiff’s motion for such approval creates a new procedural battleground within the Canadian class action regime. 2013 witnessed the further development of the principles governing such motions. These principles will likely continue to evolve given that courts have accepted third party funders as a permissible source of class action funding.