Canadian Court Finds Third-Party Funding Not Prima Facie Maintenance or Champerty

A recent decision by an appellate court in Canada has endorsed an important principle that could be seen to support third-party financing of commercial litigation. Since litigation finance remains relatively novel in many jurisdictions and the case law governing it continues to evolve, appellate opinions such as this are considered bellwethers.

The Manitoba Court of Appeal’s decision in Bjornsson v Smith provides Canada’s latest and most substantive appellate discussion of longstanding rules against maintenance and champerty in the litigation funding context. The Court’s reasoning that provision of financial support does not prima facie constitute an improper motive for participating in litigation may be influential in future adjudications involving claims of maintenance and champerty.

The Bjornsson Ruling

In Bjornsson, the Law Society of Manitoba paid damages to three innocent beneficiaries of a will as a result of the estate lawyer’s breach of professional duties, which included the misappropriation and conversion of trust property. The Law Society then obtained a release and assignment of the beneficiaries' interest in all causes of action arising from the misconduct, and assumed control of the ongoing litigation.

The estate lawyer sought to strike the action, in part, on grounds that it was funded by the Law Society and was therefore barred by the rule against maintenance and champerty. The lower court dismissed the lawyer’s motion. The Manitoba Court of Appeal subsequently upheld the lower court’s decision and dismissed the estate lawyer’s appeal.

It found that the Law Society had a legitimate interest in the litigation—namely, recovering its monies paid out as a result of the estate lawyer’s ethical breach. The court also found there was no evidence the Law Society had any improper motive.

Motive, the Court of Appeals held, is determinative of the question of whether a certain arrangement constitutes maintenance or champerty. It is only where there is improper motive on the part of a third party with regard to a matter in litigation that maintenance or champerty may be found and the third party excluded from participating in the litigation.

While determining exactly what constitutes improper motive may be some what ambiguous, the Court was clear that the provision of financial support to a lawsuit will not suffice. The Court of Appeal cited Professor McCamus' comments in The Law of Contracts (Toronto: Irwin Law, 2005 at pp 441-442) regarding what constitutes improper motive: The court’s adoption of Professor McCamus' comments may have significant implications for the provision of third-party litigation funding in Canada. In particular, the affirmation by an appellate court that providing financial support to a lawsuit does not prima facie demonstrate improper motive is a positive finding for both funders and litigants.

Lincoln Caylor of Bennett Jones is recognized as a “leading counsel and commentator in the asset recovery field,” by Chambers Canada 2016, and is listed as a Most Highly Regarded Individual in North America by Who’s Who Legal: Asset Recovery 2016. The sole Toronto member of ICC FraudNet, he is internationally recognized for leading state-of-the-art asset tracing investigations and pursuing asset recovery litigation and enforcement actions in prominent, high-value international financial frauds and other economic crimes

The author appreciates David A. Cassin’s contribution to this piece.





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