Should a court hear from a defendant before approving third party funding of a class action against that defendant? As we have previously commented (see here and here), courts in Ontario have usually answered “yes” to that question. However, in Schneider v Royal Crown Gold Reserve Inc a Saskatchewan court took a different approach: Chief Justice Popescul approved a litigation financing and indemnity agreement (“LFA”) without any notice to the defendants. Although he left open the possibility of the defendants challenging the LFA in the future, his reasons suggest that generally courts do not need to hear from defendants before approving third party funding.
The Schneider Decision
The plaintiff started a class action claiming that he and other class members lost money investing in a gold property because of the defendants’ alleged deceit, negligent and statutory misrepresentations, negligence, and breach of contract. That class action was certified in 2012.
In 2015, Saskatchewan went from being a “no costs jurisdiction” to a “costs jurisdiction” as a result of amendments to that province’s Class Actions Act, exposing the plaintiff to the risk of a significant costs award if his action was eventually dismissed. To address that risk, the plaintiff entered into the LFA and then applied for court approval of that agreement.
Relying on decisions in other provinces approving similar agreements, Chief Justice Popescul concluded that the court has jurisdiction to approve the LFA. He also decided to approve the LFA and grant a sealing order requested by the plaintiff.
Chief Justice Popescul then considered whether the plaintiff should have given notice of his motion to the defendants. He concluded that the defendants did not have any legal interest in the motion, and notice was not required because it did not matter “from whose pocket an adverse cost award is paid”. However, Chief Justice Popescul also stated that a copy of his order should be served on the defendants and, because the motion had been brought without notice, the defendants could apply to set aside or vary the order in the future.
Implication for Defendants
The decision in Schneider, like earlier decisions in Alberta and New Brunswick, can be contrasted with the approach taken in Ontario and British Columbia, where courts have concluded that the defendants’ participation is of assistance to the court. In Fehr v Sun Life Assurance Company of Canada and in Bayens v Kinross Gold Corporation, Justice Perell held that defendants are affected by third party funding motions and they should be given the opportunity to participate in such motions. However, more recently in Berg v Canadian Hockey League, Justice Perell was willing to modify that approach and exclude the defendants from part or all of the process because of the unique nature and sensitivities of the agreement before him in that case.
Unlike Berg, the decision in Schneider was not restricted to the particular agreement before the court. Rather, contrary to the approach in Ontario, the decision suggests that defendants are generally not affected by third party funding agreements such that plaintiffs will usually not be required to provide notice when seeking court approval of such agreements. That being said, the decision does not leave defendants without any recourse. As noted above, Chief Justice Popescul observed that the defendants could apply to set aside or vary his order. That process puts the onus on defendants to take steps that they would not generally have to take in Ontario to ensure participation (especially in cases where the agreement and the court record are subject to a sealing order).
As these issues increasingly come before the courts, defendants who face parallel class actions in more than one province may have very different rights if a third party funding motion is brought in one province versus the next. Further, disclosure of materials in one province may effectively undermine a confidentiality order made in another. Unless and until the approaches taken in different provinces becomes more harmonious, defendants must be mindful of these inconsistent rights of participation in third party funding motions.