COURT FILE NO.: 05-CV-287428 CP
DATE: 2020/12/23
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
FLYING E RANCHE LTD.
Plaintiff
- and -
THE ATTORNEY GENERAL OF CANADA on behalf of
HER MAJESTY THE QUEEN IN RIGHT OF CANADA as represented by
THE MINISTER OF AGRICULTURE
Defendant
Malcolm N. Ruby, Duncan C. Boswell and Cameron Pallett for the Plaintiff
William Knights and Cynthia Koller for the Defendant
HEARD: December 23, 2020
PERELL, J.
REASONS FOR DECISION
A. Introduction
[1] Pursuant to the Class Proceedings Act, 1992,[^1] the Plaintiff Flying E Ranche Ltd. (“Flying E”) asks for:
a. approval of a third-party litigation Funding Agreement among Flying E Ranche, Gowling WLG (Canada) LLP, and Harbour Fund IV, L.P.;
b. pre-approval of the return to Harbour Front IV under the Funding Agreement;
c. an Order that the Funding Agreement be binding on Class Members; and
d. an Order that the Plaintiff may serve and file under seal the motion materials to protect privileged or confidential information found at Exhibit 2 of the Sears Affidavit and to file an unredacted version of the motion materials.
[2] The Defendant Federal Government takes no position with respect to Flying E Ranche’s requests.
[3] For the reasons that follow, the requests are granted and an Order should go as asked.
B. Factual and Procedural Background
[4] The Class Members are Canadian beef and dairy farmers. Flying E is the Representative Plaintiff in this certified class action. It sues the Defendant Government of Canada for alleged negligence in failing to prevent imported United Kingdom (“UK”) cattle from introducing bovine spongiform encephalopathy (“BSE”), also known as “Mad Cow Disease,” into Canada.
[5] In 1986, the first case of Mad Cow Disease was diagnosed in the United Kingdom. The number of diagnosed cases in the UK grew exponentially such that there were over 13,000 confirmed cases on more than 6,000 farms by May 1990. In 1990, the Federal Government realized that the disease was a major problem in the UK that could adversely affect Canada’s cattle industry if the disease gained entry into Canada.
[6] In 1990, in response to the threat, the Federal Government: (a) refused import permits for cattle and other ruminants from the UK; (b) ordered destruction of some UK imports at points of entry into Canada; and (c) implemented and operated a monitoring program for about 168 UK cattle previously imported into Canada between 1982 and 1990.
[7] On May 20, 2003, a Canadian-born cow was diagnosed with Mad Cow Disease. That day, the export markets for Canadian cattle were closed and the value of Canadian cattle plummeted.
[8] Flying E alleges that the Federal Government was negligent in failing to prevent UK cattle imported into Canada between 1982 and 1990 from introducing Mad Cow Disease into Canada. Flying E alleges that the introduction of Mad Cow Disease into Canada, and the loss of Canada’s lucrative cattle export market, was a direct result of the Federal Government’s failure to properly assess risks and to act to respond to the risks. Flying E alleges that the Federal Government was negligent in failing to design and operate an effective monitoring program. It further alleges that the Federal Government was negligent in failing to implement a feed ban by at least 1994, after it became aware that UK cattle known to be at risk of the disease had been slaughtered and their remains had entered the Canadian animal food chain.
[9] In April 2005, the class action was commenced and on September 3, 2008, it was certified as a national class action.[^2] A similar proceeding was certified in the province of Québec in June 2007, and two parallel class proceedings were commenced in Alberta and Saskatchewan. The proceedings in Québec, Alberta, and Saskatchewan have been stayed to await the outcome of the trial in this case, which will commence January 2021.
[10] In certifying the class action, Justice Lax also approved a settlement between the Class and Ridley Inc. (“Ridley”), a company alleged to have negligently manufactured BSE-contaminated feed. Under the settlement, the Class agreed not to seek to apportion liability against Ridley in exchange for evidentiary assistance and the payment of $6 million. The Ridley payment was placed into a trust fund that has been used to fund disbursements and counsel fees at significantly reduced rates.
[11] For over 12 years, the Fund from the Ridley settlement has been used to fund disbursements and fees for counsel representing the national class of Canadian cattle farmers prosecuting the action. The Ridley Settlement Fund has now been substantially depleted.
[12] Gowling WLG and Cameron Pallett represent the Class in the Ontario action and belong to a consortium of law firms from Alberta, Saskatchewan, and Québec, which collectively represent the interests of the national Class. Gowling WLG and Cameron Pallett will share counsel responsibilities for the imminent 70-day trial in Ontario of the national class action scheduled to begin in February 2021.
[13] The original representative plaintiff, Bill Sauer, who is now deceased, entered into a retainer agreement with Cameron Pallett on April 24, 2006. The 2006 Retainer Agreement included terms that payment of fees and disbursements would be contingent on success and calculated based on a 20 per cent fee of any recovery on settlement, 25 per cent of any judgment at trial, or 30 per cent of any judgment following an appeal.
[14] In December 2007, Justice Lax approved the retainer in principle, subject to further review and final determination of the fees of counsel by the Court at the time of judgment or settlement. Justice Lax ordered that the 2006 Retainer Agreement be sealed in the Court file.[^3]
[15] After Mr. Sauer became ill, the current Plaintiff, an Alberta corporation that was the putative representative plaintiff in the Alberta proceeding, became the Representative Plaintiff. Flying E entered into a new retainer with Gowling WLG and Cameron Pallett. The new retainer has the same contingency fee formula previously approved in principle by Justice Lax. The Amended Retainer Agreement provides that Gowling WLG will attempt to enter into a third-party funding agreement that will contain an indemnity for any adverse costs award against Flying E.
C. The Funding Agreement
[16] Flying E prosecutes the class action but is unable to assume the substantial litigation expenses to advance the class action to trial and the financial risk of an adverse costs award.
[17] The Funding Agreement for which approval is sought is congruent with other litigation funding arrangements involving Harbour Fund IV that have been approved by the Ontario Superior Court.[^4]
[18] The Funding Agreement secures a substantial investment from Harbour Fund IV, a large, well-established international litigation funder, whose advisers are based in the United Kingdom.
[19] Harbour Fund IV is a litigation investment fund with committed capital of £350 million (approximately $520 million) to invest in litigation-related activities worldwide. It is one of five funds overseen by Harbour, an experienced litigation funding advisor in the United Kingdom.
[20] In the UK, Harbour Fund IV is subject to oversight by the regulatory body for the financial services industry. Harbour is a founding member of the Association of Litigation Funders (“ALF”), the self-regulatory body responsible for third-party litigation funding in England & Wales.
[21] Harbour Fund IV has funded more than 100 litigation and arbitration disputes, including class proceedings in Canada, the UK, Germany, the United States, Bermuda, the British Virgin Islands, the Channel Islands, Hong Kong, Australia, New Zealand, and other jurisdictions. The total value of these claims is over US$14 billion. Harbour Fund IV abides by the ALF Code of Conduct for Litigation Funders, which sets out standards of best practice for litigation funders. The ALF Code includes provisions to ensure non-interference in the conduct of litigation, confidentiality of information, and capital adequacy.
[22] Under the Funding Agreement, the proposed return to Harbour Fund IV is a minimum of 5 per cent of any settlement up to a maximum of 10 per cent of any amount recovered after the commencement of trial. This is more competitive funding than is available through the Class Proceedings Fund.
[23] The Funding Agreement also protects the Defendant’s interests. Under the terms of the proposed Funding Agreement, Harbour Fund IV: (a) submits to the jurisdiction of Ontario courts; (b) agrees to abide by the deemed undertaking rule applicable in Ontario; and (c) agrees, if required, to post security for costs up to an agreed-upon maximum amount.
[24] Under the Funding Agreement, Harbour Fund IV shall indemnify the Plaintiff for adverse costs awards, cover trial disbursements, and pay legal fees for preparation and attendance at trial subject to an Agreed Budget and an agreed maximum. The Funding Agreement incorporates terms that reflect the provisions of the ALF Code and that are required under Ontario jurisprudence, including:
a. Flying E must seek pre-approval from the Court of the return to Harbour Fund IV together with the Court’s approval of the Funding Agreement.
b. Flying E cannot agree to the Funding Agreement without first receiving independent legal advice.
c. Harbour Fund IV must follow the provisions of the ALF Code, which includes terms that ensure non-interference in litigation, confidentiality, and capital adequacy.
d. Harbour Fund IV is entitled to information but cannot interfere with the litigation.
e. Flying E maintains exclusive control over decisions relating to the compromise, continuation, or discontinuation of the proceeding.
f. Harbour Fund IV attorns to the jurisdiction of Ontario courts, and disputes arising from the Funding Agreement will be determined by the Ontario Superior Court of Justice.
g. Harbour Fund IV will post security for costs if required and will indemnify Flying E for any adverse costs awards, up to an agreed maximum.
h. Harbour Fund IV abides by strict confidentiality terms and will protect privilege in respect of any information received under the Funding Agreement.
i. Harbour Fund IV agrees to abide by and be bound by the deemed undertaking rules under the Rules of Civil Procedure.[^5]
j. Under the Funding Agreement, an ongoing reporting process is established to ensure active communication between the parties and timely distribution of funds.
k. Flying E undertakes to conduct itself in a manner that effectively prosecutes the class action and must conduct itself in accordance with the Class Proceedings Act, 1992, the Rules of Civil Procedure and all applicable court orders.
l. An Agreed Budget provides the parties’ reasonable estimates of costs.
m. Subject to breach of contract, in the event the Class Proceeding is unsuccessful, Flying E and the Class are not liable to repay Harbour Front IV.
[25] In return for Harbour Fund IV’s financial commitment, in the event of any settlement or judgment in favour of the Class, Harbour Fund IV is entitled to payment of up to 10 per cent of any recovery based on timing of receipt of monies by Harbour Fund IV’s, as follows:
a. If Harbour Fund IV receives monies under the Agreement as a result of the class achieving a monetary award or settlement before the first day of any substantive hearing on liability, Harbour Fund IV shall be entitled to receive the greater of an amount equal to:
i. 5 per cent of the monetary award or settlement; or
ii. 4 times the amount of funds provided by Harbour Fund IV’s under the Investment Agreement,
but in any case, not exceeding an amount equal to 10 per cent of the total monetary award or settlement; or
b. If Harbour Fund IV receives monies under the Agreement as a result of the class achieving a monetary award or settlement after the first day of any substantive hearing on liability, Harbour Fund IV shall be entitled to receive the greater of an amount equal to:
i. 10 per cent of the monetary award or settlement; or
ii. 4.5 times the amount of funds provided by Harbour Fund IV under the Investment Agreement,
but in any case not exceeding an amount equal to 10 per cent of the total monetary award or settlement.
[26] Before executing the Funding Agreement, Flying E received independent legal advice from Stanley Church Q.C., an independent and experienced lawyer in Alberta. Mr. Church gave advice to Larry Sears, Flying E’s principal, about each provision of the funding proposal in detail and provided legal advice about the terms of the proposal in the context of the litigation and Flying E’s retainer with Gowling WLG and Cameron Pallett.
D. Discussion and Analysis
[27] The general test for approval of a third-party funding agreement is that the agreement should not be champertous or illegal and it must be a fair and reasonable agreement that facilitates access to justice while protecting the interests of the defendants.[^6]
[28] Ontario courts have developed a four-factor test to approve a third-party litigation funding agreement, which requires that the court be satisfied that: (a) the agreement must be necessary in order to provide access to justice; (b) the access to justice facilitated by the third-party funding agreement must be substantively meaningful; (c) the agreement must be a fair and reasonable agreement that facilitates access to justice while protecting the interests of the defendants; and (d) the third-party funder must not be overcompensated for assuming the risks of an adverse costs award because this would make the agreement unfair, overreaching, and champertous.[^7]
[29] Third-party litigation funding is acceptable as promoting the important objectives of class proceedings, including promoting access to justice and behaviour modification, and may be justified in class proceedings as a matter of necessity.[^8]
[30] In the immediate case, financial assistance under the Funding Agreement is necessary to promote access to justice, and the Funding Agreement provides Flying E and Class Counsel with the resources necessary to address the financial challenges of prosecuting a lengthy class proceeding trial against the Federal Government involving complex legal, technical, and scientific issues that must be addressed through expert reports.
[31] To date, Class Counsel has expended thousands of hours to prosecute the action on a contingency basis, and the fund created by the previous settlement has been depleted by fees and disbursements in Ontario and three other provinces. The litigation fund cannot cover the fees and remaining disbursements necessary to complete the trial. Flying E requires an indemnity for adverse costs awards. The Class requires funding for counsel fees and substantial additional disbursements for trial and any appeals. The Funding Agreement is necessary to ensure Flying E and the Class are able to achieve access to justice.
[32] The Funding Agreement places appropriate obligations on Harbour Fund IV to support all aspects of the case and maintains Flying E’s right to instruct counsel and direct the litigation while ensuring that Flying E continues to be engaged in prosecuting the proceeding in the best interests of the class. In the immediate case, the Funding Agreement makes a meaningful contribution to achieving the goals of the class proceedings and protects the Defendant’s interests.
[33] Harbour Fund IV is in a financial position to satisfy its funding obligations under the Funding Agreement, including payment of costs awarded against Flying E up to a fixed amount. Given Flying E’s significant difficulty in continuing to act in a representative capacity without benefit of an adverse costs indemnity, the Defendant’s interests are better protected if the Court approves the Funding Agreement.
[34] A litigation funding agreement cannot over-compensate the third-party funder for assuming the risks of an adverse costs award.[^9] In the immediate case, a recovery by Harbour Fund IV of up to 10 per cent of an award or settlement accords with class proceeding jurisprudence where a third-party funding agreement that involves recovery of 10 per cent or less has been approved and compares favourable with the funding available from the Class Proceedings Fund assuming that it were prepared to grant funding.
[35] In Houle v. St. Jude Medical Inc.[^10] I pre-approved a 10 per cent portion of the funder’s contingency fee reasoning that in this way, the funder is protected for taking on the risk (because it will not do worse than the Class Proceedings Fund would have done and the Class Members are protected from overcompensating the funder because the court must approve the balance of the contingency fee.
[36] My reasoning in Houle similarly applies to the Funding Agreement in the immediate case, except that the terms of the Funding Agreement are more advantageous to Flying E and the Class because Harbour Fund IV is seeking recovery of only up to 10 per cent of the award or settlement without also requiring repayment of invested funds. The recovery to Harbour Fund IV could be as low as 5 per cent if the matter is settled before trial.
[37] Pre-approving Harbour Fund IV’s recovery of up to 10 per cent protects it for taking the risk of providing financial support, and Class Members are protected from overcompensating Harbour Fund IV because the court must approve the balance of Class Counsel’s contingency legal fees. (No pre-approval of Class Counsel fees is requested on this motion.)
[38] The recovery to Harbour Fund IV under the Funding Agreement is commensurate with the quantum of investment and the level of risk undertaken. Harbour Fund IV is not overcompensated under the Funding Agreement, and the rate of recovery for Harbour Fund IV of up to 10 per cent should be pre-approved.
E. Conclusion
[39] For the above reasons, the relief requested is granted.
Perell, J.
Released: December 23, 2020
COURT FILE NO.: 05-CV-287428 CP
DATE: 2020/12/23
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
FLYING E RANCHE LTD.
Plaintiff
- and -
THE ATTORNEY GENERAL OF CANADA on behalf of HER MAJESTY THE QUEEN IN RIGHT OF CANADA as represented by THE MINISTER OF AGRICULTURE
Defendant
REASONS FOR DECISION
PERELL J.
Released: December 23, 2020
[^1]: S.O. 1992, c. 6. [^2]: Sauer v. Canada (Minister of Agriculture), 2008 CanLII 43774 (ON SC), [2008] O.J. No. 3419 (S.C.J.). [^3]: Sauer v. Canada (Agriculture), 2008 CanLII 43774 (ON SC), [2008] O.J. No. 3419 (S.C.J.). [^4]: Drynan v Bausch Health Companies Inc., 2020 ONSC 4; Rebuck v Ford Motor Company, unreported order issued 24 October 2017; Musicians’ Pension Fund of Canada (Trustee of) v Kinross Gold Corp. 2013 ONSC 4974. [^5]: R.R.O. 1990, Reg. 194. [^6]: Drynan v Bausch Health Companies Inc., 2020 ONSC 4; JB & M Walker Ltd./1523428 Ontario Inc. v. TDL Group, 2019 ONSC 999; Houle v. St. Jude Medical Inc., 2017 ONSC 5129 affd 2018 ONSC 6352 (Div. Ct.). [^7]: Drynan v Bausch Health Companies Inc., 2020 ONSC 4; JB & M Walker Ltd./1523428 Ontario Inc. v. TDL Group, 2019 ONSC 999; Houle v. St. Jude Medical Inc., 2017 ONSC 5129 affd 2018 ONSC 6352 (Div. Ct.). [^8]: Drynan v Bausch Health Companies Inc., 2020 ONSC 4; David v. Loblaw, 2018 ONSC 6469; Houle v. St. Jude Medical Inc., 2017 ONSC 5129, affd 2018 ONSC 6352 (Div. Ct.); Musicians’ Pension Fund of Canada (Trustee of) v Kinross Gold Corp. 2013 ONSC 4974; Dugal v. Manuflife Financial Corp., 2011 ONSC 1785 [^9]: Houle v. St. Jude Medical Inc., 2017 ONSC 5129 affd 2018 ONSC 6352 (Div. Ct.). [^10]: Houle v. St. Jude Medical Inc., 2017 ONSC 5129 affd 2018 ONSC 6352 (Div. Ct.).