In the July 2011 issue of Lexpert, Patricia Jackson questions the protection of confidential information and settlement discussions from third-party funders of class actions in Ontario

Enter the Silent Partner

July 18, 2011

With Dugal v. Manulife Financial Corporation, Ontario became the third province to allow third-party funding of class actions. In this case, the plaintiffs worked out an agreement with Claims Funding International plc, or CFI, a Dublin-based litigation funder. The agreement put before the court called for CFI to indemnify the plaintiffs against a possible cost award and pay $50,000 toward disbursements. In return, CFI would receive 7% of any settlement or damage award after fees and expenses were deducted. There is a $5 million cap on the payout if the money comes in before the plaintiffs file their pre-trial conference brief; $10 million after that.

CFI also set out the conditions. Class counsel is required to advise CFI "of any significant issue in the proceeding, including prospects of success, strategy and quantum." The terms of the contract also stipulate that (plaintiff's counsel) Siskinds is "required to respond to any reasonable request by CFI for information about the proceedings." In contrast, "CFI acknowledges that the representative plaintiffs are to instruct counsel and that counsel's duties are to the plaintiffs and not to CFI."

Exactly what constitutes "appropriate information" is where the rubber hits the road, says Patricia Jackson, the Torys litigator defending Manulife. "What still needs to be addressed is the appropriate level of protection with respect to confidential information and settlement discussions," says Jackson. Does the funder really need to have access to any of this – and what's the implication on the litigation?"

Jackson is not opposed to third-party funding. But she is opposed to serving up confidential information to the BridgePoints and CFIs of this world. "If the plaintiffs think otherwise in this case, they're going to have to tell us what they think the third-party funder needs and why," she says. The third party "is not a party to the litigation and ... shouldn't become a party." She notes that it doesn't control this litigation nor is doing anything other than funding it.

Does Jackson believe third-party funders like CFI have the right to be told of the settlement offer on the table? "I would have thought not because they're not supposed to control the conduct of the litigation. They're merely funding it. I don't understand why there would be a need for them to know about settlement negotiations without the consent of the defendant."

Lexpert subscribers can read the full article here.

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