Law Times

Page 12 July 24, 2017 • law Times www.lawtimesnews.com FOCUS tingency and some with litiga- tion funding." While Kauffman expects this option will make trustees, receivers and monitors more adventurous, he also considers there are balances in place. "We will not see a tidal wave of frivolous or abusive claims. The funders have got to win the case to get their money back," he says. "There will be a larger vol- ume of lawsuits in cases where creditors didn't want to risk re- covery before." In situations where creditors wish to take over the lawsuit themselves, Kauffman advises that there are mechanisms that allow that to happen. "In bankruptcy, there is a method by which a creditor can get assignment of the claim where the trustee in bankruptcy won't pursue the claim," he says. "In restructurings under the CCAA, it's not uncommon to set up a litigation trust for the causes of action." Apostolatos laments that, unfortunately, in certain insol- vencies, there are very few assets that are unencumbered. "When the assets are covered by blanket security, any realiz- ation from them goes to the se- cured creditor," he says. "There may be nothing left over for the unsecured creditors except claims. For instance, you might have 20 or 30 claims for preferential payments." He says that when a creditor institutes proceedings when a trustee doesn't want to or can't, a creditor can, but the money re- covered goes to pay that creditor and potentially other creditors if they decide to participate. "e way the system works now, the creditors have to get in- volved. If insolvency profession- als with lawyers are empowered to do what they do, creditors won't have to worry," he says. "My prediction is that this will ultimately benefit the mass of creditors and not just the one, two or three that decided to par- ticipate in litigation." A trustee is also permitted to sell the right to a claim. Kauffman can foresee this becoming more common with the availability of third-party funding. "I think our judicial system has to be open to these new and creative ways of assisting liti- gants in seeking justice and get- ting paid," says Apostolatos. "ere is no doubt in my mind that litigation funding in appropriate circumstances is something that we lawyers ap- preciate. It ultimately increases access to justice." LT the firm, identifies the commer- cial litigation finance market as the firm's focus. "While our firm is Ontario based, our strategy is more fo- cused on the U.S., U.K. and Aus- tralian markets, which are the most mature markets for litiga- tion finance based on English common law," he says. He defends the practice of viewing litigation finance com- panies as an investment vehicle. "If you put yourself in the position of the investment com- munity, you will quickly come to realize that capital will only f low to those litigation finance companies that have a success- ful track record and, by default, those who provide financial support to meritorious claims," he says. "There has been no data pre- sented in any jurisdiction that indicates that litigation finance has resulted in an increase in litigation or an increase in the pursuit of frivolous litigation. Capital would simply not be attracted to frivolous oppor- tunities because they would by definition be much more risky, have a higher loss ratio and, ulti- mately, result in poor returns to investors, which would not be a sustainable investment class." Truant says that for litigation finance to be effective and for it to work as a vehicle to improve access to justice, it needs to be viewed as an asset. "Otherwise, capital would not get attracted to the sector and it would not be available as a business tool to those compa- nies that require its benefits. I think it is naive to suggest that you can offer up a financial tool to level the playing field but you shouldn't have to provide a re- turn to investors," he says. "Litigation is an asset, no dif- ferent than brand, goodwill or any other intangible, and corpo- rations trade in and value intan- gibles on a daily basis." As the area develops, the trend to monetize litigation will have to withstand court scru- tiny, and it may well reach the point where it crosses a line. Aubrey Kauffman, a partner at Fasken Martineau DuMou- lin LLP, says there are arguments for and against viewing litiga- tion funding as an investment vehicle. But when he turns his mind to the next foreseeable develop- ment in the field, which is that claims will be bought and then pursued through third-party fi- nance as a business model, he is not so sanguine. "Given the history of mainte- nance and champerty, if some- one was in the business of buy- ing lawsuits for profit, I think a judge would take a long hard look at that. It's bad policy to al- low somebody to encourage liti- gation for profit. Until recently, the whole concept of third-party funding would have been pro- hibited. Then came the advent of class actions and a policy view that the more important prin- ciple is access to justice," he says. "The whole doctrine of main- tenance and champerty has gone away, but it's still out there. I think, if a third party went into the marketplace and bought the right to sue and then went and got third-party funding, some- one would breathe life into those concepts again." LT Continued from page 10 No wave of claims Litigators open to new solutions Continued from page 11 Lincoln Caylor says litigation can be either an asset or a liability for a company. 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