On March 16, 2018, a Quebec Court approved a litigation funding agreement for an insolvent company operating under court-protection in a Companies’ Creditors Arrangement Act (CCAA) proceeding. The insolvent company wanted to pursue a significant claim against its primary secured creditor and the litigation funding agreement stipulated that the third party litigation funder will pay all legal fees and disbursements in relation to the proposed claim in exchange for a portion of any proceeds of the litigation.
The Quebec Court reaffirmed that, in Canada, third party funding agreements should be approved, subject to the following principles:
- the third party funding agreement must be necessary to provide to a plaintiff access to justice;
- Plaintiff’s right to instruct and control the litigation should not be diminished by the third party funding agreement;
- the third party funding agreement must not compromise or impair the lawyer and client relationship or the lawyer’s duties of loyalty and confidentiality;
- the compensation of the third party funder must be fair and reasonable; and
- the third party funder undertakes to keep confidential any confidential or privileged information.
The Quebec Court’s decision in Re 9354-9186 Québec Inc. (Bluberi Gaming Technologies Inc.), 2018 QCCS 1040 is a step towards greater acceptance of litigation funding agreements in the insolvency context. Rather than accept sub-optimal settlement offers on outstanding claims due to their financial inability to enforce their rights, insolvent companies, through litigation funding agreements, now have more options to pursue outstanding claims and increase recovery for creditors.