Third-party litigation funding involves investment firms providing money to litigants (usually plaintiffs) to cover their costs. In return, investors receive a portion of damages from successful verdicts.
Firms will often invest in a portfolio of cases, with the expectation that a few of them will result in large payouts.
Advocates of third-party litigation funding argue that it improves the abilities of plaintiffs to pursue their claims against wealthier defendants, creating a more level playing field by reducing financial barriers.
Detractors point to the often high fees charged by litigation funders, arguing that it serves to redistribute money from plaintiffs seeking justice into the pockets of wealthy funders.
The increase in litigation funding could add more strain to courts, given that the trend may increase the number of lawsuits, and that funders often pursue large payouts at trial rather than settlement agreements.
Some Canadian court decisions from the last six to seven years have opened the door to third-party litigation funding, which has proven to be immensely profitable for certain firms. Meanwhile, American firms providing litigation funding had more than $13 billion under their management as recently as 2022.
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Sources
Robyn Doolittle, “How third-party funding allowed a tiny newspaper to wage legal warfare against Google and Meta”, The Globe and Mail (20 March 2024), online.
IMS Legal Strategies, “GoSueMe: The Broken Promises of Third-Party Litigation Funding”, JD Supra (5 April 2024), online.