How Class Actions have Shaped Litigation Financing Law in Canada

Abstract: Third party litigation financing has become more widely accepted as a justifiable exception to the law against champerty for its potential to improve access to justice for plaintiffs with meritorious claims but who lack the funds to pursue their actions. In Canada, litigation funding was introduced as an accessory to class actions in part because of the statutorily mandated court supervision, and in part because funding agreements are often critical to advancing these actions when faced with large costs exposure. The disproportionate presence of class actions in Canadian jurisprudence on litigation financing has resulted in a unique system in which much of the analysis developed to evaluate the legality of litigation financing agreements in class actions has been applied beyond this context. The intent of this paper is to provide an overview of the current law of litigation financing and to canvass ethical issues that have received the most attention; namely, ensuring that funders are not overcompensated and do not interfere with the lawyer-client relationship. Although the law of litigation financing is still in its infancy, trends have emerged that allow the extrapolation of the future trajectory of the industry. This paper also considers some dichotomies that appear to be emerging, such as those between vulnerable and more sophisticated plaintiffs, between litigation financing and insurance, and between indemnification agreements and those that invest significantly more in the litigation.