Third-party funding is now part of Canadian litigation. A plain-language overview of how funding works, what it costs and what courts look at.
Third-party litigation funding, where an outside funder pays some or all of the costs of a claim in exchange for a share of any recovery, is now an established part of Canadian civil litigation. Funders are active in commercial disputes, class actions, insolvency matters and intellectual property claims.
How funding usually works
A funder typically agrees to pay legal fees, disbursements and, in some cases, exposure to adverse costs. In return, the funder receives a return if the claim succeeds, often calculated as a multiple of the funds deployed, a percentage of the recovery, or the greater of the two. If the claim fails, the funder generally loses its investment.
What courts look at
Ontario courts have approved funding agreements in the class action context and have addressed funding in other proceedings. The issues that tend to matter include:
- Control. The claimant, advised by counsel, should keep control of the litigation and of settlement decisions.
- Confidentiality and privilege. Sharing case information with a funder raises privilege questions that should be addressed in the agreement.
- Reasonableness of the return. Courts look at whether the funder’s return is fair given the risk it takes.
- Termination rights. The circumstances in which a funder can withdraw should be clear.
Questions to ask before signing
- What exactly does the funder pay for, and what is excluded?
- How is the return calculated at different settlement values and timelines?
- Who decides whether to accept a settlement offer?
- Can the funder terminate, and what happens to costs already incurred if it does?
- Does the agreement cover adverse costs or security for costs?
Funding can make a meritorious claim viable that would otherwise not be pursued. It also changes the economics of a case, and the terms deserve the same scrutiny as the claim itself.
This article is general information about Ontario and Canadian law as of its date. It is not legal advice.