Superior Court of Québec Expresses Serious Reservations about Pre-Approving Private Funding of Class Actions

Superior Court of Québec Expresses Serious Reservations about Pre-Approving Private Funding of Class Actions

In its recent decision in E.L. v.  Attorney General of Québec, the Superior Court of Québec declined to pre-approve a Litigation Funding Agreement (LFA) submitted by the plaintiff in a class action.[1] The Court held that the plaintiff’s legal fees, and by extension the reasonableness of the proposed agreement, could only be assessed against the results achieved through a final judgment or out-of-court settlement. The agreement therefore could not be pre-approved.

Background

In a class action that is not yet authorized, the plaintiff and its counsel requested that the Court pre-approve the LFA entered into with impleaded party Omni Bridgeway (Fund 5) Canada Investments Ltd. The defendant opposed the pre-approval sought.

There is no rule in Québec requiring that such an agreement be approved by the courts at any particular time. That said, under article 593 of the Code of Civil Procedure, the indemnity for the payment of the representative plaintiff’s legal fees is subject to court oversight. This includes any LFA that predetermines the amount or method of calculating legal fees. Article 593 provides:

593.  The court may award the representative plaintiff an indemnity for disbursements and an amount to cover legal costs and the lawyer’s professional fee. Both are payable out of the amount recovered collectively or before payment of individual claims.

In the interests of the class members, the court assesses whether the fee charged by the representative plaintiff’s lawyer is reasonable; if the fee is not reasonable, the court may determine it.

Regardless of whether the Class Action Assistance Fund provided assistance to the representative plaintiff, the court hears the Fund before ruling on the legal costs and the fee. The court considers whether or not the Fund guaranteed payment of all or any portion of the legal costs or the fee.

Pre-Approval of Private Funding

The Superior Court of Québec allowed the LFA to be filed, but declined to pre-approve it.

In reaching its decision, the Superior Court assessed the reasonableness of the LFA and discussed pre-approval of private class action funding as a concept. The Court concluded that it could not approve the LFA, given the law as applied in previous Québec judgments. Even if it could have granted such pre-approval, it held that doing so would not be appropriate.

The fee agreement at issue provided that the plaintiff’s counsel would receive their fees, grossed up by “multiplier factors” upon success, to compensate them for the risk they took on. This type of agreement allows them to receive more than their applicable hourly rate, as long as the fees remain reasonable.

To assess whether such fees are reasonable, the court must analyze various factors, including the results achieved. This means that it is impossible to conduct such an analysis absent a settlement or a judgment on the merits.

The Court noted that pre-approval would force the court to approve the LFA without having before it all the information it needed to assess the reasonableness of the legal fees or to determine the impact of the LFA on those fees. However, it invited the plaintiff to submit a narrower pre-approval request, limited specifically to known or foreseeable court-ordered costs and expert fees.

Québec Charts its Own Course

Through this decision, Québec is charting its own course relative to other Canadian provinces. For example, under section 33.1 of the Class Proceedings Act, 1992,[2] Ontario courts have the express power to pre-approve third-party funding agreements for class actions, provided that the fees are reasonable.[3]

Key Takeaways

• The Superior Court of Québec declined to pre-approve a private funding agreement in a class action.
• The agreement may only be approved at the end of the litigation, when the court has all the information it needs to assess whether it is reasonable.
• In contrast, courts elsewhere in Canada do allow such pre-approval.
• However, it is still possible to obtain pre-approval in Québec for funding restricted to costs that have been incurred or are foreseeable.

[1] E.L. v.  Attorney General of Québec, 2024 QCCS 1386 [E.L.] (available in French only).
[2] Class Proceedings Act, 1992, S.O.  1992, c.  6 [CPA].
[3] E.L., para. 9.

By Joséane Chrétien

A Cautionary Note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2024