Introduction

The use of funding agreements in international arbitration proceedings is increasingly common. The extent to which privilege may attach to a funding agreement governed by the laws of British Columbia was recently addressed by the British Columbia Supreme Court in Stanway v Wyeth Canada Inc (2013 BCSC 1585) in the context of a class action proceeding. In Stanway the court addressed, among other things, whether communications between the claimant and the private funder, including the funding agreement itself or portions of it, were protected by privilege. The court agreed that in substance, such communications remained protected by privilege.

Background

As yet, no Canadian court has addressed funding agreements in the international arbitration context. The class action context, where courts have a statutory role in supervising any award of fees made to counsel for the plaintiff class, is where the most sustained consideration of funding agreements is found in Canada. However, even that consideration is limited and Stanway represents the British Columbia courts' first consideration of funding agreements. The court's acceptance of privilege protection in the class action context in Stanway bolsters the view that privilege would attach to funding agreements in the arbitral context.

In Stanway the British Columbia Supreme Court reviewed the limited jurisprudence in Canada with respect to litigation funding agreements and took a different approach to that taken by the Ontario courts. The Ontario decision in Fehr v Sun Life Assurance Co of Canada (2012 ONSC 2715) held that funding agreements (in the class action context where, as mentioned, unique considerations apply which are unlikely to be present in the international arbitration context) were not privileged. The court held that third-party funding should be transparent and should not be allowed to operate clandestinely due to a concern that it might subvert the public policy purposes of class proceedings.

Decision

The British Columbia Supreme Court in Stanway concluded that the substance of the agreement in that case would be subject to privilege – namely, as it relates to the plaintiff's strategy, budget and other "highly sensitive matters". The court held (at paragraph 43):

"Certainly, the confidential communications between the plaintiff, her counsel and a private financer in respect of the merits of the litigation and the litigation budget will be privileged, as well as highly sensitive topics relating to the plaintiff's strategy and trial stamina. There are other features of the [litigation funding agreement] which the defendants will be entitled to access, specifically those addressing the specific concerns which the defendants raise, including their concerns that the implied undertaking rule is observed and that the private financer is not controlling the litigation."

Unfortunately, given the nature of the application before the court, there was no elaboration on how privilege would be applied to specific aspects of the funding agreement.

Comment

The existing law in British Columbia reflects a nuanced approach to funding agreements, which recognises their utility by giving effect to privilege attaching to them. A claim for privilege would be strong in the international arbitration context, given the very different circumstances to the class action context in which Stanway (and other cases in Canada) have been decided.

Unless and until a Canadian court has an opportunity to pronounce definitively on the extent to which privilege applies to funding agreements in general, and particularly in the international arbitration context, counsel should be cautious and take particular care to ensure that confidential information is provided only through highly structured and controlled processes, recognising that the potential funder necessarily requires enough information to be able to form an impression of the risk and potential reward the case presents, and that the claimant may be unable to proceed with its case at all without the assistance of third-party funding. There will undoubtedly be further developments in this area in the near future, given the clear utility of funding agreements as a vehicle to permit the adjudication of claims on their merits.

Authors

Robert J. C. Deane 
RDeane@blg.com
604.640.4250

Craig R. Chiasson 
CChiasson@blg.com
604.640.4221

Expertise

Litigation and Arbitration