The Legal Landscape of Litigation Finance in Canada

In countries like the US and the UK, the practice of litigation funding is well-established. Litigation finance is a third party paying for a plaintiff’s legal defense in exchange for a share of the case’s settlement funds.

Despite the long-standing use in Canada, courts there have permitted litigation funding agreements. Clients view Litigation Finance Canada as a way to advance claims while reducing costs and risks.

INDEX

What is Litigation Finance?

Why Choose Litigation Finance in Canada

Non-Recourse Basis

Regulatory Environment

Risk Mitigation

Confidence for Lawyers

How to Find the Right Litigation Funder in Canada

Parting Thoughts

What is Litigation Finance?

A financial arrangement known as litigation finance or funding involves a third-party investor. They lend money to a litigant to pay for court fees. The investor is not a party to the lawsuit and is only repaid if the litigant is successful.

Litigation funding agreements (LFAs) typically include the following terms:

• The investor agrees to pay all or part of the litigant’s legal costs.
• The litigant agrees to pay the investor a return if the lawsuit is successful.
• The investor agrees not to exercise any control over the lawsuit.
• The litigant agrees to make all decisions about the lawsuit and potential settlement.

LFAs may require court approval in certain cases. This includes class action and insolvency proceedings. Many parties all around Canada have made use of this to hire top-notch attorneys, manage litigation costs, and reduce risk.

Why to Choose Litigation Finance in Canada

In many other legal markets, the high cost of legal fees has made it difficult for parties to bring claims. Litigation funding has become well-established but is still relatively new in Canada.

Here are some reasons to choose litigation.

Non-Recourse Basis

A particular kind of loan, known as litigation finance, exempts the borrower from repayment of the principal even if they lose the case. The lender is only repaid if the borrower wins the case and receives proceeds from the judgment. This is known as non-recourse financing.

Commercial litigation funding is a type of litigation funding that is used to finance commercial disputes. It is also typically non-recourse.

Regulatory Environment

Canada has developed a regulatory framework for litigation that provides some oversight and consumer protection. This can give plaintiffs and law firms confidence in the industry’s legitimacy.

The legal landscape of litigation finance in Canada is continuously evolving. As the industry grows, regulatory and legal changes may shape the way litigation finance operates.

Risk Mitigation

Litigation funding helps plaintiffs and law firms mitigate the financial risks of pursuing a legal claim. They can get the money they need without having to pay upfront for things like court costs and other expenses.

It can be costly and time-consuming to litigate. Therefore, for those who lack the financial means to pursue their claims on their own, litigation funding is ideal.

Confidence in Lawyers

Litigation finance can give law firms the confidence to take on a wider range of cases.

With financial backing from a litigation funder, litigation funders can pursue cases that they might not otherwise be able to afford. This can help third-party litigation funding teams expand their practice areas and attract new clients.

How to Find the Right Litigation Funder in Canada

If you’re now in search of a litigation funding provider, here are some valuable tips:

• Understanding Compounding Frequency. Similar to mortgage interest, litigation loan interest can be compounded. Determine how often this compounding occurs. This frequent compounding can result in higher overall payments.
• Compare Interest Rates. Pay close attention to the interest rates associated with the funding fee outlined in your contract. High interest rates can be financially burdensome. So, it’s essential to understand and consider them before committing to an agreement.
• Assess Application Fees. Different litigation funding companies in Canada have varying policies. Keep in mind that this fee is a one-time expense and doesn’t guarantee approval for your loan. Be mindful of the cost.
• Prioritize Value Over Volume. When searching for reputable companies offering lawsuit settlement loans, focus on quality rather than quantity. This is a significant financial decision. So, choose companies that prioritize providing value over quick profits.
• Review Experience and Reputation. Lawsuit loan providers vary in terms of service and quality. A company with decades of experience is often a more reliable choice.

Lawyers who participate in litigation funding agreements must do so in their client’s best interests. They should fully disclose their involvement and follow their directions.

Of course, litigation finance is not just used in class actions; it also frequently emerges in complex commercial litigation and arbitration.

Parting Thoughts

As the law and practice of litigation funding in Canada develops, it is becoming important for commercial litigants to consider the availability and efficacy. Litigation funding has proven to be beneficial in Canada, even beyond class proceedings.

An experienced provider can produce a litigation funding agreement to meet the specific needs of the claimholder, counsel, and funder.

Mike

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