The Death of Champerty: Is Third Party Litigation Funding the New Normal in Class Actions?

Abstract: Are third party litigation funding agreements in class actions becoming the new normal? Historically, champerty was a crime in Canada, and these types of agreements were illegal. It was considered champertous for a third party to finance a lawsuit that it had no interest in, and in return receive a portion of the party’s winnings. The law has, however, been gradually clearing certain obstacles — beginning in 1953 with the change in the Criminal Code; followed by the implementation of class actions legislation; and later followed by legislative and judicial endorsement of business models for class proceedings. The high risks involved in modern class proceedings, such as counsel’s growing work-in-progress (WIP) accounts and costs awards, have led both parties and the courts to consider third party funding agreements in class actions. This paper will consider the historical development of third party litigation funding in class actions in Ontario. Third party funders make important contributions to access to justice by investing in class actions that may not otherwise have the funding to proceed. Notably, the Law Commission of Ontario in its Class Actions: Objectives, Experiences and Reforms: Final Report, included recommendations to amend the Class Proceeding Act, 1992, the statute governing class actions in Ontario, to permit third party funding of class actions and to codify the trends that are readily apparent in the case law. Recently, the Supreme Court of Canada addressed third party litigation funding in 9354-9186 Quebec Inc v Callidus Capital Corp. While not a class action, this insolvency dispute demonstrates the first time the Supreme Court of Canada has pronounced on third party litigation funding. The moral and legal derision of champerty appears to be behind us, and third party funding in class actions may be the new normal.