The Financing Litigation Series: Third-Party Litigation Funding
November 1, 2017
BY Valerie Le Blanc
This blog post is the second 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.
Third-party litigation funding is the practice of an outside party, who has no personal interest in the litigation, offering financial support to a litigant. Funding can derive from private and public sources. Private third-party litigation funding involves a third-party funder entering into a litigation funding agreement with a plaintiff, lawyer or law firm to finance legal fees and disbursements. Examples include contingency fee agreements, litigation loans, and adverse cost insurance. Public third-party litigation funding is collected and distributed to litigants through statutory mechanisms. These are designed to allocate federal and provincial funding to both individual and groups of litigants. Examples include provincial class proceedings funds, legal aid plans, and workers’ compensation advocacy services.
Highlights from the Study Paper on Third-Party Litigation Funding
Optimal Uses
- Powerful opposition (equalize the financial playing field between plaintiffs and large, well-funded defendants);
- Riskier cases (encourage lawyers and firms to expand their risk threshold); and
- Industry-specific (e.g. commercial litigation or intellectual property cases).
Advantages
- Improved accessibility to cases not traditionally taken on contingency
- Enhance application in jurisdictions with two-way cost regimes
- Diversifying risk
- Improves client ability to pay for necessary disbursements
- Coverage for out-of-pocket litigation expenses
Disadvantages
- Litigation privilege and disclosure
- Lack of regulation
- Potential undue influence and power imbalances
- Potential to advance unmeritorious cases
- A form of insurance
Ethics and professional responsibility considerations
- Complications from lawyer self-financing
- Threats to the independence of plaintiffs and counsel
- Limited applicability
Opportunities for systemic, structural, or legal change
The consultation participants and research highlighted three ideas where changes could be considered to promote third-party litigation funding in British Columbia: regulations for litigation funding agreements; greater judicial oversight; and expand to include arbitration matters.
Some Recent Developments on Third-Party Litigation Funding (since June 2017)
- LEXOLOGY online article, “Three’s a crowd? Third-party arbitration funding” (Borden Ladner Gervais LLP, 17 August 2017). The article discusses the use of third-party litigation funding for arbitration. The article reviews Canadian jurisprudence on third-party litigation funding agreements, and the use of this financing model for international disputes and arbitrations.
- LEXPERT: The Business Magazine for Lawyers published an article, “Leveraged Litigation” (10 October 2017). The article discusses the use of third-party litigation funding as expanding beyond class proceedings litigation to cover private commercial matters and the mining, oil and gas litigation sector. To view the article, visit its website here.
- See also online article, “Litigation Funding: Six Frequently Asked Questions” (13 October 2017). The article is a Q&A with Tania Sulan, Chief Investment Officer of Bentham IMF Capital Limited. Ms. Sulan’s interview includes discussion about what claims are most suited to third-party litigation funding, what the service offers, and resources for more information. To view the article, visit the website here.
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 7—Third-Party Litigation Funding (PDF)
- List of Resources—Third-Party Litigation Funding (PDF)
Stay tuned for our post on November 15th on the topic of alternative fee arrangements!
