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Ontario Superior Court Approves Funding Agreement For Tim Hortons Franchisees

In JB & M Walker Ltd. v. TDL Group, Justice Morgan approved a litigation funding agreement between Galactic TH Litigation Funders LC and the representative plaintiff in two proposed class actions between Tim Horton's franchisees and the franchisor. Neither action had yet been certified, though shortly after this motion the actions were certified for the purposes of settlement. The need for a funder arose when an association of franchisees that had funded previous litigation (and this litigation until recently) was no longer able to fund this litigation, and class counsel could not carry its fees on a go-forward basis.

Under the terms of the proposed funding agreement, Galactic was to (i) pay class counsel's fees and disbursements on a pay-as-you-go, non-recourse basis in accordance with a budget, (ii) post any security for costs as may be ordered, and (iii) indemnify the plaintiffs for any adverse costs awards. Galactic also attorned to the jurisdiction of the Ontario courts and agreed that the funding arrangement could only be terminated with court approval.

The Court found that the funding agreement was fair and reasonable, and notably found:

  1. the funding agreement was necessary from an access to justice perspective because the size of the class was small relative to the size of the litigation exposure and the potential costs award, and the legal fees to date were already larger than the representative plaintiff's potential recovery;
  2. the funding agreement provided for a meaningful contribution, since Galactic would pay full legal fees and would post security for costs as required; and
  3. the funder was not overcompensated because its recovery of between 22% and 26% was within the range of "presumptive validity" that the Court had previously recognized, and was below the standard 33% contingency fee that class counsel would often seek.

This decision continues a trend of Ontario courts being open to litigation funding agreements. The agreement in question in this case also did not contain some of the more innovative features of agreements that could give a court pause, for example were the funder only to agree to provide an undertaking in the event security for costs were ordered, rather than posting security. The terms that were ultimately agreed to in this case may have been influenced by the imminent settlement.