Champetry and Maintenance
Prepared by Edwin Durbin, B.Comm., LL.B., LL.M. of the Ontario Bar and updated by Helen M. Hall, B.A. (Hons.), LL.B. of the Ontario Bar
Torts — IX — Specific Torts — 7 — Champerty and Maintenance
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IX.7.(a) — General
§188 The tort of maintenance arises when an individual intermeddles in a lawsuit in which he or she does not have a genuine interest. Champerty arises when the intermeddling occurs by virtue of an agreement. Maintenance involves providing financial support for another to bring or defend an action; champerty involves not only the provision of such support, but an agreement to share the profits of the action. Historically, both champerty and maintenance were also common law criminal offences but with the abolition of non-statutory criminal offences, there is now only a civil law action.
§189 Although the policy underlying the actions to prevent the abuse of litigation may still be valid, the scope of both actions has been eroded by the realities of modern commerce.
§190 Champerty and maintenance are not defences to actions. However, a stay of proceedings may be appropriate if the champerty or maintenance gives rise to an abuse of process.
IX.7.(b) — Elements of Cause of Action
§191 To be actionable, the intermeddling must be inciteful and must encourage or stir-up the litigation. The offer of certain forms of financial assistance or the supply of information has been considered to constitute intermeddling.
§192 However, there must also be an improper motive present to found the action. A common interest, either direct or indirect, in the litigation will constitute a proper motive.
§193 There can be no champerty or maintenance if the maintainer has a justifying motive or excuse. The justification or excuse is to be found in the righteousness of the suit and the proof of its righteousness is its success. Where the underlying action or defence is a valid and legitimate use of the court system, there can be no damages based on these causes of action. The lawfulness of a defendant's position in maintaining litigation can only be determined once the litigation has concluded.
§194 Not all forms of financial assistance to support litigation are actionable. An absolute assignment or an assignment for fixed consideration will not be considered champertous. However, if payment is conditional upon recovery or based on a percentage of recovery then it may be actionable.
§195 Third party litigation funding agreements do not categorically constitute champerty. The law recognizes that in certain circumstances, financial assistance by a third-party funder may be the only means for a litigant to achieve access to justice. It is too early to say that every class action automatically needs a third-party funding agreement or that any particular form of agreement is always good or always bad. As the industry grows and new forms of transactions emerge, they will be considered on their merits with due input from the affected parties.
§196 To approve a third-party funding agreement the court must be satisfied that: (a) the agreement is necessary to provide access to justice; (b) the access to justice created by the third-party funding agreement is substantively meaningful; (c) the agreement is fair and reasonable and facilitates access to justice while protecting the interests of the defendants; and (d) the third-party funder will not be overcompensated for assuming the risks of an adverse costs award. In addition, the funding agreement must not interfere with: the lawyer-client relationship; the lawyer's duties of loyalty and confidentiality; or the lawyer's professional judgment and carriage of the litigation on behalf of the representative plaintiff or class members in the class action. The representative plaintiff must retain the right to instruct and control the litigation and the representative plaintiff must not become indifferent in giving instructions to class counsel in the best interests of the class members. Also, the third-party funding agreement must contain a term that the third-party funder will be bound by the deemed undertaking rule and will not disclose confidential or privileged information. The third-party funder may be required to pay into court security for the defendant's costs.
§197 Court approval of a third-party funding agreement must be obtained, and the agreement must be promptly disclosed to the court. The balancing of what is fair and reasonable is an exercise of discretion that will turn on the particular facts of each case. The court has jurisdiction to approve a litigation funding agreement and make an order that will be binding on the putative class members should they not opt out of the action.
§198 Where an action has been commenced prior to the making of an agreement to provide assistance or where a person finances litigation or provides assistance at a party's request, there can be no maintenance, as the person so assisting cannot be said to have stirred up the litigation.
§199 At common law, contingency fees relating to contentious litigation were viewed as champertous. However, the public policy that rendered such agreements void may no longer be applicable and, except in Saskatchewan, contingency fee arrangements are permitted by virtue of statute or rules of court, subject to specified procedures.
§200 To successfully make out a cause of action, the plaintiff must establish damage. Neither champerty nor maintenance is actionable per se.