The Supreme Court of Canada this week (8 May 2020) published written reasons for its judgment in Québec inc. v. Callidus Capital Corp. 2020 SCC 10 (the Bluberi case). The joint reasons were given by Wagner C.J. and Moldaver J., with Abella, Karakatsanis, Côté, Rowe and Kasirer JJ. concurring.
Following an initial order under the Companies Creditors’ Arrangement Act (CCAA), one of three principal insolvency statutes in Canada, substantially all of the assets of the Bluberi companies were liquidated. The notable exception was retained claims for damages against the companies’ only secured creditor, Callidus Capital Corporation, which describes itself as an “asset-based or distressed lender”. It was alleged that Bluberi’s liquidity issues were the result of Callidus taking de facto control of the corporation and dictating a number of purposefully detrimental business decisions. Bluberi alleged that Callidus engaged in this conduct in order to deplete the corporation’s equity value with a view to owning Bluberi and, ultimately, selling it.
Callidus’ efforts to push through a plan of arrangement were thwarted by the supervising judge, Michaud J. in the Quebec Superior Court, who considered that Callidus was acting with an improper purpose. The supervising judge also authorized Bluberi to enter into a third party litigation funding agreement, which would permit them to pursue litigation of the retained claims against Callidus. The litigation funding agreement provided for the placement of a $20 million super-priority charge in favour of the litigation funder on Bluberi’s assets, in particular the retained claims, which Bluberi asserted should amount to over $200 million in damages.
The Court of Appeal of Quebec (Dutil and Schrager JJ.A. and Dumas J. (ad hoc)) set aside the supervising judge’s order, but the Supreme Court disagreed with the Court of Appeal and reinstated the supervising judge’s order.
Among other points, the Supreme Court held that a supervising judge can approve third party litigation funding, pursuant to section 11.2 of the CCAA, which provides:
…a court may make an order declaring that all or part of the company’s property is subject to a security or charge — in an amount that the court considers appropriate — in favour of a person specified in the order who agrees to lend to the company an amount approved by the court as being required by the company, having regard to its cash-flow statement. The security or charge may not secure an obligation that exists before the order is made.”
The Supreme Court held that whether third party litigation funding should be approved as interim financing is a case-specific inquiry. Interim financing is a flexible tool that may take on a range of forms. This is apparent from the wording of section 11.2, which is broad and does not mandate any standard form or terms. At its core, interim financing enables the preservation and realization of the value of a debtor’s assets. In some circumstances, like the instant case, litigation funding furthers this basic purpose. Third party litigation funding agreements may therefore be approved as interim financing in CCAA proceedings when the supervising judge determines that doing so would be fair and appropriate, having regard to all the circumstances and the objectives of the Act. This requires consideration of the specific factors set out in section 11.2(4), which provides:
“Factors to be considered
(4) In deciding whether to make an order, the court is to consider, among other things,
(a) the period during which the company is expected to be subject to proceedings under this Act;
(b) how the company’s business and financial affairs are to be managed during the proceedings;
(c) whether the company’s management has the confidence of its major creditors;
(d) whether the loan would enhance the prospects of a viable compromise or arrangement being made in respect of the company;
(e) the nature and value of the company’s property;
(f) whether any creditor would be materially prejudiced as a result of the security or charge; and
(g) the monitor’s report …if any.”
These factors need not be mechanically applied or individually reviewed by the supervising judge, as not all of them will be significant in every case, nor are they exhaustive. Additionally, in order for a third party litigation funding agreement to be approved as interim financing, the agreement must not contain terms that effectively convert it into a plan of arrangement.
In the instant case, the Supreme Court was satisfied that the supervising judge’s manifest experience with the debtor companies’ CCAA proceedings were such that the factors listed in section 11.2(4) concern matters that could not have escaped his attention and due consideration. It is apparent that he was focused on the fairness at stake to all parties, the specific objectives of the CCAA, and the particular circumstances of this case when he approved the litigation funding agreement as interim financing. Further, the litigation funding agreement is not a plan of arrangement because it does not propose any compromise of the creditors’ rights. The fact that the creditors may walk away with more or less money at the end of the day does not change the nature or existence of their rights to access the funds generated from the debtor companies’ assets, nor can it be said to compromise those rights. Finally, the litigation financing charge does not convert the litigation funding agreement into a plan of arrangement.
The extracts of most relevance to litigation funding in Canada are set out below:
“ Third party litigation funding generally involves “a third party, otherwise unconnected to the litigation, agree[ing] to pay some or all of a party’s litigation costs, in exchange for a portion of that party’s recovery in damages or costs” (R. K. Agarwal and D. Fenton, “Beyond Access to Justice: Litigation Funding Agreements Outside the Class Actions Context” (2017), 59 Can. Bus. L. J. 65, at p. 65). Third party litigation funding can take various forms. A common model involves the litigation funder agreeing to pay a plaintiff’s disbursements and indemnify the plaintiff in the event of an adverse cost award in exchange for a share of the proceeds of any successful litigation or settlement (see Dugal v. Manulife Financial Corp., 2011 ONSC 1785, 105 O.R. (3d) 364; Bayens).
 Building on jurisprudence holding that contingency fee arrangements are not champertous where they are not motivated by an improper purpose (e.g., McIntyre Estate), lower courts have increasingly come to recognize that litigation funding agreements are also not per se champertous. This development has been focussed within class action proceedings, where it arose as a response to barriers like adverse cost awards, which were stymieing litigants’ access to justice (see Dugal, at para. 33; Marcotte v. Banque de Montréal, 2015 QCCS 1915, at paras. 43-44 (CanLII); Houle v. St. Jude Medical Inc., 2017 ONSC 5129, 9 C.P.C. (8th) 321, at para. 52, aff’d 2018 ONSC 6352, 429 D.L.R. (4th) 739 (Div. Ct.); see also Stanway v. Wyeth, 2013 BCSC 1585, 56 B.C.L.R. (5th) 192, at para. 13). The jurisprudence on the approval of third party litigation funding agreements in the class action context — and indeed, the parameters of their legality generally — is still evolving, and no party before this Court has invited us to evaluate it.
 That said, insofar as third party litigation funding agreements are not per se illegal, there is no principled basis upon which to restrict supervising judges from approving such agreements as interim financing in appropriate cases. We acknowledge that this funding differs from more common forms of interim financing that are simply designed to help the debtor “keep the lights on” (see Royal Oak, at paras. 7 and 24). However, in circumstances like the case at bar, where there is a single litigation asset that could be monetized for the benefit of creditors, the objective of maximizing creditor recovery has taken centre stage. In those circumstances, litigation funding furthers the basic purpose of interim financing: allowing the debtor to realize on the value of its assets.
 The foregoing is consistent with the practice that is already occurring in lower courts. Most notably, in Crystallex, the Ontario Court of Appeal approved a third party litigation funding agreement in circumstances substantially similar to the case at bar. Crystallex involved a mining company that had the right to develop a large gold deposit in Venezuela. Crystallex eventually became insolvent and (similar to Bluberi) was left with only a single significant asset: a US$3.4 billion arbitration claim against Venezuela. After entering CCAA protection, Crystallex sought the approval of a third party litigation funding agreement. The agreement contemplated that the lender would advance substantial funds to finance the arbitration in exchange for, among other things, a percentage of the net proceeds of any award or settlement. The supervising judge approved the agreement as interim financing pursuant to s.11.2. The Court of Appeal unanimously found no error in the supervising judge’s exercise of discretion. It concluded that s.11.2 “does not restrict the ability of the supervising judge, where appropriate, to approve the grant of a charge securing financing before a plan is approved that may continue after the company emerges from CCAA protection” (para. 68).
 A key argument raised by the creditors in Crystallex — and one that Callidus and the Creditors’ Group have put before us now — was that the litigation funding agreement at issue was a plan of arrangement and not interim financing. This was significant because, if the agreement was in fact a plan, it would have had to be put to a creditors’ vote pursuant to ss. 4 and 5 of the CCAA prior to receiving court approval. The court in Crystallex rejected this argument, as do we.
 … third party litigation funding agreements are not necessarily, or even generally, plans of arrangement.
 None of the foregoing is seriously contested before us. The parties essentially agree that third party litigation funding agreements can be approved as interim financing. The dispute between them focusses on whether the supervising judge erred in exercising his discretion to approve the LFA in the absence of a vote of the creditors, either because it was a plan of arrangement or because it should have been accompanied by a plan of arrangement. We turn to these issues now.
(3) The Supervising Judge Did Not Err in Approving the LFA
 In our view, there is no basis upon which to interfere with the supervising judge’s exercise of his discretion to approve the LFA as interim financing. The supervising judge considered the LFA to be fair and reasonable, drawing guidance from the principles relevant to approving similar agreements in the class action context (para. 74, citing Bayens, at para. 41; Hayes, at para. 4). In particular, he canvassed the terms upon which Bentham and Bluberi’s lawyers would be paid in the event the litigation was successful, the risks they were taking by investing in the litigation, and the extent of Bentham’s control over the litigation going forward (paras. 79 and 81). The supervising judge also considered the unique objectives of CCAA proceedings in distinguishing the LFA from ostensibly similar agreements that had not received approval in the class action context (paras. 81-82, distinguishing Houle). His consideration of those objectives is also apparent from his reliance on Crystallex, which, as we have explained, involved the approval of interim financing in circumstances substantially similar to the case at bar (see paras. 67 and 71). We see no error in principle or unreasonableness to this approach.
 In our view, it is apparent that the supervising judge was focussed on the fairness at stake to all parties, the specific objectives of the CCAA, and the particular circumstances of this case when he approved the LFA as interim financing. We cannot say that he erred in the exercise of his discretion. Although we are unsure whether the LFA was as favourable to Bluberi’s creditors as it might have been — to some extent, it does prioritize Bentham’s recovery over theirs — we nonetheless defer to the supervising judge’s exercise of discretion.
 We agree with the supervising judge that the LFA is not a plan of arrangement because it does not propose any compromise of the creditors’ rights. To borrow from the Court of Appeal in Crystallex, Bluberi’s litigation claim is akin to a “pot of gold” (para. 4). Plans of arrangement determine how to distribute that pot. They do not generally determine what a debtor company should do to fill it. The fact that the creditors may walk away with more or less money at the end of the day does not change the nature or existence of their rights to access the pot once it is filled, nor can it be said to “compromise” those rights. When the “pot of gold” is secure — that is, in the event of any litigation or settlement — the net funds will be distributed to the creditors. Here, if the Retained Claims generate funds in excess of Bluberi’s total liabilities, the creditors will be paid in full; if there is a shortfall, a plan of arrangement or compromise will determine how the funds are distributed. Bluberi has committed to proposing such a plan (see supervising judge’s reasons, at para. 68, distinguishing Cliffs Over Maple Bay Investments Ltd. v. Fisgard Capital Corp., 2008 BCCA 327, 296 D.L.R. (4th) 577).
 … the LFA and litigation of the Retained Claims [was] the “only potential recovery” for Bluberi’s creditors
Woodsford welcomes this judgement from the Canadian Supreme Court and stands ready to support both insolvent and solvent Canadian claimants in their pursuit of justice. For further information or if you have a claim or claims to discuss, contact Ekin Cinar in Toronto on firstname.lastname@example.org