The Financing Litigation Series: Crowdfunding
December 6, 2017
BY Valerie Le Blanc
This blog post is the fourth in a six-part series showcasing each of the six financing models explored in the Study Paper on Financing Litigation (PDF), published on October 4, 2017, and recent developments in British Columbia. To read other posts in the series click here.
Crowdfunding is used by individuals and businesses to raise small amounts of money from a large number of people to carry out a specific project. A popular forum used to crowdfund litigation is the internet, through online funding portals. Funding can be provided to litigants as a donation, or as an investment in a share of equity ownership in the litigation.
Donation crowdfunding enables people to offer financial support for a cause or project without the expectation of a financial or other reward in return.
Equity-based crowdfunding enables investors to finance litigation in exchange for a portion of a settlement or court judgment.
Highlights from the Study Paper on Crowdfunding
Optimal Uses
- Advocacy organizations (e.g. used to raise money for important cases, or to support advocacy services generally);
- Sympathetic cases (e.g. cases with the sympathetic facts, or cases with high value to the public interest, are more likely to be funded);
- Cases with low awards (especially the case for donation-based crowdfunding, where individuals provide financial support to a litigant as a donation, rather than an investment, to a cause).
Advantages
- Mitigate unpredictable costs
- Meet client expectations
- Pipeline to unbundled legal services
- Long-term client relationships
Disadvantages
- Limited application to large or complex cases
- Administrative costs to develop a new model
- Burden on the client
- Limitation of contingency fee agreements
Ethics and professional responsibility considerations
- Negative client expectations
- Flat fee reviews by courts
Opportunities for systemic, structural, or legal change
The consultation participants and research highlighted two ideas where changes could be considered to promote crowdfunding in British Columbia: enhanced regulations and guidelines; and practitioner database of lawyers who take on crowdfunded cases.
Some Recent Developments on Crowdfunding (since June 2017)
- Alberta Law Reform Institute will be conducting a research and consultation project on Informal Public Appeals. ALRI notes that “crowdfunding is quick, easy, and often has a strong emotional component that can garner substantial media attention.” The project will examine some of the legal implications associated with the use of informal public appeals as a source of funding, “with the goal of recommending legislation that will clarify the rights and responsibilities of organizers, donors, and beneficiaries.” For more information about the project, visit its webpage.
- British Columbia Securities Commission published an article on September 21, 2017 announcing changes to the start-up crowdfunding exemption rules for BC-based issuers. The article notes that amendments to the rules will now permit access to investors in Alberta, and “also permit an increased investment, for some investors, of up to $5,000.” The BC Securities Comission notes the intent of the new changes is to coordinate crowdfunding rules in BC and Alberta. To view the article, visit the BC Securities Commission News Release page.
About the Financing Litigation Legal Research Project
The Study Paper on Financing Litigation (PDF) examines the traditional and alternative methods litigants use to pay for litigation. The cost of litigation is a significant barrier to accessing the justice system. While some disputes can be resolved outside the courtroom, litigation is often the only means to achieve an equitable result. However, a litigant’s ability to pay for the legal fees and expenses that come with litigation may become a concern before, or during, the process. Taking a legal dispute to trial is expensive. Many litigants lack the financial resources to take on the risk of an unsuccessful case.
The study paper reviews six financing models that have emerged both in Canada and internationally:
- Unbundled legal services;
- Third-party litigation funding;
- Alternative fee arrangements;
- Crowdfunding;
- Legal expense insurance; and
- Publicly funded litigation funds.
The study paper also identifies 18 opportunities and ideas to consider for structural, systemic or legal change to enhance the use of each financing option in British Columbia. It concludes with a chapter that briefly discusses five alternative ideas that could mitigate the rising cost of legal services and improve access to justice generally.
This project was made possible by funding from the Law Foundation of British Columbia.
Useful Links
- Study Paper on Financing Litigation (PDF)
- Highlights from Chapter 9—Crowdfunding (PDF)
- List of Resources—Crowdfunding (PDF)
Stay tuned for our post on December 13th on the topic of legal expense insurance!
