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April 2021

Litigation Loans and Adverse Cost Insurance - An Update

The Doctrines of Champerty and Maintenance

Van Krkachovski
Van Krkachovski,

By Van Krkachovski

Following the publication of the article Litigation Loans and Adverse Cost Insurance in March 2021, the writers received a question regarding the interplay between the doctrines of champerty and maintenance and its effect on litigation loans.

The Black's Law Dictionary definition of “maintenance” is as follows:

An officious intermeddling in a lawsuit by a non-party by maintaining, supporting or assisting either party, with money or otherwise, to prosecute or defend the litigation.

“Champerty” is defined by Black's Law Dictionary as follows:

A bargain between a stranger and a party to a lawsuit by which the stranger pursues the party's claim in consideration of receiving part of any judgment proceeds; it is one type of “maintenance”, the more general term which refers to maintaining, supporting or promoting another person's litigation.

Both of these concepts are based on English common law, but they have not been applied the same in Canada. In the context of litigation loans, the oft-cited case is the British Columbia Supreme Court decision, Wiegand v Huberman,  (1979), 18 B.C.L.R. 102, which states:

The old English cases indicate that the courts used to seek to discourage litigation. In Canada, while the courts do not seek to encourage litigation, they do not want to place any obstacles in the way of an aggrieved citizen bringing a lawsuit which on legal advice he wishes to bring. Given the costs of litigation, it may be necessary to obtain such assistance; in fact, it is commonplace in this province for lawyers to undertake litigation on behalf of clients with limited or no means on the understanding that if the suit is successful the lawyer will receive an agreed share of the proceeds. Are such agreements unlawful and unenforceable? I cannot imagine that they are.

As such, Canadian jurisdictions have leaned heavily on the access to justice arguments, in that, in order to pursue litigation, a loan to fund it must sometimes be taken. As such, the “classic” definition of champerty and maintenance in Canada has been watered down.

...the courts will still enforce champerty where the interests of justice require doing so.

However, the courts will still enforce champerty where the interests of justice require doing so. For example, the Court of Appeal in McIntrye v Ontario (Attorney General), (2002), 61 O.R. (3d) 257 (Ont. C.A.), provided grounds for when the court will intervene, stating:

Champerty is a subspecies of maintenance. Without maintenance, there can be no champerty.

For there to be maintenance, the person allegedly maintaining an action or proceeding must have an improper motive, which motive may include, but is not limited to, officious intermeddling or stirring up strife. There can be no maintenance if the alleged maintainer has a justifying motive or excuse.

The type of conduct that has been found to constitute champerty and maintenance has evolved over time so as to keep in step with the fundamental aim of protecting the administration of justice from abuse.

When the courts have had regard to statutes such as the Champerty Act and the Statute Concerning Conspirators, they have not interpreted those statutes as cutting down or restricting the elements that were otherwise considered necessary to establish champerty and maintenance at common law.

Further, in Oldford v. Canadian Broadcasting Corp., 2004 NSSC 105, 223 N.S.R. (2d) 380 (N.S. S.C.), Coughlan J. dealt with the issue squarely. He concluded that a claim for maintenance is not actionable without proof of actual loss. Actual loss will not be incurred if the maintainer is successful in the underlying action. On that basis, he struck a claim for champerty and maintenance regarding an underlying claim that had not been concluded.

For further information, we suggest reading the following cases: Bourgoin v Ouellete et al.,(2009), 343 N.B.R. (2d) 58 (Q.B); Metzler Investment v Gildan Activewear et al., 2009 Can LII 41540.

The above noted white paper was presented at CLC's seminar of the same title. Christopher Potenza of Hurwitz Fine presented the USA perspective.

Litigation loan details broken down by province or state are also available in chart format for download in both Canadian & USA versions.

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