In Davies v. Clarington (Municipality), 2023 ONCA 376, the Court of Appeal for Ontario refused to order four litigation funders to pay the $3.34 million in costs awarded against the Plaintiff. The litigation funders had financed the Plaintiff’s unsuccessful litigation through loans with high, uncapped, compound interest, but had not agreed to indemnify the Plaintiff from an adverse costs award. Neither the litigation funder nor the Plaintiff had obtained court approval of the funding agreements.
This case highlights that a litigation funder’s control over the litigation is not only relevant to the Houle v St Jude Medical Inc, 2017 ONSC 5129 test for court approval of funding agreements, but also the 1318847 Ontario Ltd v. Laval Pool Mould Ltd, 2017 ONCA 184 test for awarding costs against a non-party. Specifically, a litigation funder that has refused to indemnify the plaintiff can nonetheless be found liable for an adverse costs award if it has control over the litigation.
Notably, the Court of Appeal left open whether a litigation funder can be found liable for an adverse costs award where the outstanding amounts owed to the funder result in the plaintiff declining favourable or reasonable settlement offers and protracting the litigation.