What is the legal test to approve a third party funding agreement?

Most recently, Perell J. in Heller v. Uber Technologies Inc., 2021 ONSC 5434, summarized the four-factor test developed by the Ontario courts to approve a third-party litigation funding agreement, at para. 28, as follows: Ontario courts have developed a four-factor test to approve a third-party litigation funding agreement, which requires that the court be satisfied that: (a) the agreement must be necessary in order to provide access to justice; (b) the access to justice facilitated by the third-party funding agreement must be substantively meaningful; (c) the agreement must a fair and reasonable agreement that facilitates access to justice while protecting the interests of the defendants; and (d) the third-party funder must not be overcompensated for assuming the risks of an adverse costs award because this would make the agreement unfair, overreaching, and champertous.

The third-party funding agreement which was at issue in Heller included terms that would oblige the third-party funder to indemnify the representative plaintiff against an adverse costs award and also contained, amongst other terms, a provision that would reimburse the third-party provider with eight to ten percent of the proceeds awarded to the class plus a funder administration fee. None of those terms are before the court in the various loan provider agreements. Where a litigation loan comes before the court for court approval and the loan agreement is a true loan agreement, i.e. there is no provision that would require the loan provider to indemnify the representative plaintiff and the loan provider does not share in the proceeds of any judgment or settlement, nonetheless, in my view, the loan agreement still requires court approval. In approving such a loan agreement, in my view the court must be satisfied that the loan agreement is necessary to provide access to justice; the access to justice facilitated by the loan agreement must be substantively meaningful; and the loan agreement must be a fair and reasonable agreement that facilitates access to justice. A loan agreement with interest rates comparable to those before this court, particularly interest rates which are compounded monthly are, in my view, in direct conflict with the principle of access to justice. The comments of Murray J. in Giuliani v. Region of Halton, 2011 ONSC 5119, at para. 56- 59, are equally applicable to the facts before this court: