Feb. 22, 2022
Exploring the operation and regulation of insolvency litigation funding in Canada
Professor Jassmine Girgis is the sole Canadian on an international team of researchers exploring the legalities of insolvency litigation funding across ten jurisdictions.
The project, based out of the Universities of South Australia and Adelaide, seeks to provide a cross-jurisdictional comparison of the way and extent to which commercial litigation funding is used in the insolvency context in Australia, Canada, England, Germany, Ireland, the Netherlands, New Zealand, Singapore, South Africa, and the USA.
“Litigation funding is an arrangement whereby litigation is funded, wholly or partially, by a person who is not a party. This third-party investor would then recover a return if there were an award or recovery in the litigation,” explains Girgis. Historically, these agreements have been somewhat controversial, as they could potentially offend the common law doctrines of champerty (where a third-party pays some or all of the litigation costs in return for a share of the proceeds) and maintenance (an unconnected third-party assisting to maintain litigation). Though this continues to be an evolving area of law, courts have been recognizing these agreements, the benefits of which include increased access to justice.
In 9354-9816 Québec Inc. et al. v. Callidus Capital Corp, 2020 SCC 10 [Blueberi], the Supreme Court of Canada considered litigation funding in the context of insolvency. In a unanimous decision, the Court allowed the appeal from the Québec Court of Appeal and approved third-party litigation funding as interim financing under s 11.2 of the Companies’ Creditors Arrangement Act, RSC 1985, c C-36 [CCAA]. It noted that this funding differs from other, more common forms of interim financing, but maintained, “where there is a single litigation asset that could be monetized for the benefit of creditors, the objective of maximizing creditor recovery has taken centre stage” (para 96). Litigation funding therefore accomplishes the purpose of interim financing by allowing the debtor to realize on the value of its assets.
Girgis is currently conducting online surveys with lawyers and litigation funders to determine whether and how insolvent litigation funding is regulated across these jurisdictions, the practical implications of these regulations, and whether measures are necessary to address any current regulatory gaps.
The jurisprudence dealing with insolvency litigation funding is at different stages in the different jurisdictions,” says Girgis. “I hope that by exploring the rules and regulations across these countries, we will acquire a greater understanding and vision about the future of insolvency litigation funding in Canada, and its implications for restructuring proceedings.”