Canada: Supreme Court Of Canada To Consider Litigation Funding For The First Time

Last Updated: August 20 2019
Article by Bentham IMF Capital Limited

The Supreme Court of Canada (SCC) has agreed to hear an appeal in 9354-9186 Québec Inc. et al. v. Callidus Capital Corporation et al., a matter that Bentham is funding. Given that the SCC agrees to hear only about 10% of the 500-some applications it receives each year, Bentham is pleased that this matter was selected by the country's highest court. This affords Bentham an opportunity to continue to help shape Canadian law on litigation funding.

The appeal, which will likely be argued in early 2020, is sure to be watched closely by corporate-commercial litigators and insolvency professionals across Canada.

History

Two insolvent entities (f.k.a. Bluberi) have been under Companies' Creditors Arrangement Act (CCAA) protection since 2015. Bluberi wished to assert a claim for approximately $228 million in damages against former lender Callidus Capital Corporation and related parties (Catalyst Capital Group Inc., Newton Glassman, and others), alleging wrongdoing that led to Bluberi's demise. However, Bluberi lacked the funds to advance that claim and Bentham agreed, subject to court approval, to fund its litigation.

Bluberi, with the support of the court-appointed monitor, sought CCAA court approval of its litigation funding agreement (LFA) with Bentham. Callidus brought its own motion to call a (second) creditors' meeting to approve its own plan of arrangement, through which the creditors would release Callidus from any liability to Bluberi. Callidus also sought to cast the determinative vote in favour of its own plan at that creditors' meeting.

In its March 2018 ruling, the Quebec Superior Court first dismissed Callidus' motion, finding that it constituted an attempt to use the CCAA proceedings for an "improper purpose" and that its proposal would result in a "substantial injustice" to Bluberi. The court then granted Bluberi's motion for approval of the LFA, noting that the LFA was necessary to allow Bluberi to gain access to justice, since its lawsuit against Callidus et al. represented the "only avenue that can potentially allow for any meaningful recovery for the creditors". The court also held that the LFA provides Bentham with compensation that is fair and reasonable.

In February 2019, the Quebec Court of Appeal reversed the lower court's decision, holding it would not be improper to allow Callidus to vote on its own plan of arrangement, and, in any event, the LFA could not be approved without being first put up to a vote of Bluberi's creditors. In addition, the creditors, except for Callidus, had to be shown an unredacted copy of the LFA—though only if they agreed not to disclose the litigation-privileged elements to Callidus.

In May 2019, the Quebec Court of Appeal stayed its ruling pending the Supreme Court of Canada's decision on whether to grant leave to appeal, since "the issues raised before the Supreme Court of Canada [were] serious and novel".

Supreme Court of Canada

The Supreme Court has now granted leave to appeal. This appeal raises a number of questions of public importance, including those listed on the Supreme Court's summary of this matter, such as:

  1. Can a creditor vote on the CCAA plan it sponsors, and if so, can it vote in the same class as other creditors?
  2. Can litigation funding be approved by the court as interim financing or does an LFA constitute a plan of arrangement that must be voted on by creditors?
  3. Would a litigation funder be considered an equity investor, such that its rights would be subordinated to those of the creditors?

This appeal does not directly address the merits of the underlying litigation, nor does it concern litigation funding outside of the insolvency context. Nonetheless, it affords the SCC with its first opportunity to hear argument on the role of modern litigation funding in providing access to justice for parties, including those who are insolvent or bankrupt. The SCC's decision in this matter will build upon the growing jurisprudence regarding litigation funding in Canada, and represents an exciting step in the availability of funding to advance meritorious commercial litigation of all types.

* * *

La Cour suprême du Canada examinera pour la première fois le financement de litiges

La Cour suprême du Canada (CSC) a accepté d'entendre un appel dans le dossier 9354-9186 Québec Inc. et autres. c. Callidus Capital Corporation et autres, une affaire financée par Bentham. Puisque la CSC n'accepte d'entendre qu'environ 10% des quelques 500 demandes d'autorisations d'appels reçues chaque année, Bentham est ravie que cette affaire ait été retenue par la plus haute instance judiciaire du pays. Cela permet à Bentham de continuer à contribuer au développement du droit canadien en ce qui a trait au financement de litiges.

L'appel, qui sera probablement entendu au début de 2020, sera certainement suivi de près par les avocats de litige commercial et les professionnels de l'insolvabilité à travers le Canada.

Historique

Deux entités insolvables (anciennement connues sous le nom Bluberi) se sont mises sous la protection de la Loi sur les arrangements avec les créanciers des compagnies (LACC) depuis 2015.

Bluberi souhaitait déposer une poursuite en dommages pour environ 228 millions de dollars contre son ancien prêteur Callidus Capital Corporation et des parties liées (Catalyst Capital Group Inc., Newton Glassman et autres), alléguant des actes répréhensibles ayant entraîné sa perte. Cependant, Bluberi ne disposait pas des fonds nécessaires pour avancer une telle réclamation et Bentham a accepté, sous réserve de l'approbation de la cour, de financer son litige.

Bluberi, avec l'appui du contrôleur nommé par la cour, a demandé à la cour d'approuver son entente de financement de litige (AFL) avec Bentham. Callidus a présenté sa propre demande pour convoquer une (seconde) assemblée des créanciers afin d'approuver son propre plan d'arrangement aux termes duquel les créanciers libéreraient Callidus de toute responsabilité envers Bluberi. Callidus a également tenté d'avoir le vote déterminant pour l'approbation de son propre plan lors de cette assemblée des créanciers.

Dans sa décision de mars 2018, la Cour supérieure du Québec a d'abord rejeté la demande de Callidus, estimant qu'il s'agissait d'une tentative d'utiliser la procédure en vertu de la LACC à une "fin illégitime" et que sa proposition entraînerait une "injustice substantielle" pour Bluberi. La Cour a ensuite accueilli la demande de Bluberi pour approbation de l'AFL, soulignant que l'entente était nécessaire pour permettre à Bluberi d'avoir accès à la justice, car son recours contre Callidus et al. représentait la "seule voie pouvant potentiellement permettre un recouvrement significatif pour les créanciers" (traduction libre de l'anglais). La Cour a également conclu que l'AFL prévoit une rétribution juste et raisonnable pour Bentham.

En février 2019, la Cour d'appel du Québec a infirmé la décision de la Cour supérieure, estimant qu'il ne serait pas illégitime de permettre à Callidus de voter sur son propre plan d'arrangement et que, de toute manière, l'AFL ne pourrait pas être approuvé sans être préalablement soumis à un vote des créanciers de Bluberi. De plus, les créanciers, à l'exception de Callidus, devaient recevoir une copie non caviardée de l'AFL, mais uniquement s'ils acceptaient de ne pas divulguer à Callidus les éléments couverts par le privilège relatif au litige.

En mai 2019, la Cour d'appel du Québec a suspendu sa décision dans l'attente de la décision de la Cour suprême du Canada sur la demande d'autorisation d'interjeter appel, puisque "les questions soulevées devant la Cour suprême du Canada [étaient] sérieuses et nouvelles" (traduction libre de l'anglais).

Cour suprême du Canada

La Cour suprême a maintenant accordé l'autorisation d'interjeter appel. L'appel soulève un certain nombre de questions d'intérêt public, notamment celles énumérées dans le résumé de la Cour suprême, telles que:

  1. Un créancier peut-il voter à l'égard du plan dont il est le promoteur sous le régime de la LACC, et dans l'affirmative, peut-il voter dans la même catégorie que les autres créanciers?
  2. Le financement d'un litige peut-il être approuvé par le tribunal en tant que financement provisoire ou un AFL constitue-t-il un plan d'arrangement qui doit être soumis au vote des créanciers?
  3. Un financier de litige serait-il considéré comme un investisseur de sorte que ses droits seraient subordonnés à ceux des créanciers?

L'appel ne porte pas directement sur le fond du litige sous-jacent ni sur le financement de litiges en dehors du contexte de l'insolvabilité. Néanmoins, il offre à la CSC une première occasion d'entendre des représentations sur le rôle du financement moderne des réclamations judiciaires qui permet aux parties, y compris celles qui sont en instance d'insolvabilité ou de faillite, d'avoir accès à la justice. La décision de la CSC dans cette affaire s'inscrira dans la jurisprudence croissante en matière de financement de litiges au Canada et représente une étape excitante pour l'accessibilité au financement visant à faire progresser des réclamations commerciales méritoires de tous types.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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