Canada Embraces Litigation Funding
Like much of the world, Canada’s legal system can be expensive to access effectively. Even well-off Canadians may not be able to afford to follow up on meritorious claims against powerful defendants. Enter third-party legal funding. This practice affords potential clients the financial support needed to pursue meritorious cases without the risk of incurring a huge legal debt. Above the Law details that the non-recourse nature of litigation funding is a powerful tool for leveling the legal playing field. Commonly associated with class actions, third-party funding has evolved into a resource for individual clients, corporates, and even law firms looking to share risk and reap large rewards. In Canada, litigation funding is being used in insolvency proceedings, IP disputes, award enforcement, and more. Portfolio funding arrangements are increasingly common, allowing risk to be shared across a slate of unrelated legal cases belonging to a single company or firm. Typically, funders receive a percentage of an award or recovery if the litigation is successful. If the litigation fails, the funded party is not obligated to repay the funded amount. The funder, on the other hand, loses their investment. This is why new cases are vetted carefully and why these funder fees are much higher than interest from traditional bank loans. Once laws against champerty and maintenance were set aside in Canada, funding was viewed as a necessary aspect of increasing access to justice. Typically, LFAs (Litigation Funding Agreements) do not need court approval in Canada, though this is a recent development. LFAs are rarely made public except in class actions. The Ontario Superior Court of Justice recently affirmed the public policy benefit of legal funding, particularly for those seeking damages from wealthy corporates. Legal funding in insolvency cases has been a boon to debtors trying to save struggling businesses. Funds can help maintain operations by monetizing existing legal assets, benefiting debtors.