Ontario class counsel are increasingly entering into third-party funding arrangements to hedge against the risks of adverse costs awards. The practice was recently reviewed and summarized by Justice Perell in Bayens v. Kinross Gold Corporation, 2013 ONSC 4974. The decision was summarized in a Bennett Jones client update released earlier this week.

Though the concept of third-party funding remains a work in progress, courts are aware that the practice could significantly affect the risk-reward analysis of class counsel and representative plaintiffs. One question to ask is whether courts should, in assessing fees, consider whether class counsel has assumed the risk of an adverse costs award or whether they have offloaded that risk to a third party? Given that the cost of third-party funding is paid from the class’ recovery, the willingness of counsel (or lack thereof) to expose itself to the risk of an adverse costs award would seem to merit some judicial consideration in the assessment of counsel’s fees.

In the interim, the continuing message from Ontario courts is that class counsel should tread lightly in this area and only enter into third-party agreements where outside funding is truly necessary.