Independent brokers are perfectly placed to help lawyers and their clients navigate Canada’s fast-changing litigation funding landscape, says Katie Armstrong, director of international development at TheJudge Global.

The firm, founded in 2000, is the largest international litigation funding and insurance broker, and recently entered the Canadian market via its merger with Toronto-based JusticeRisk Solutions.

Armstrong tells that the move has opened up a whole new pool of European funding options to Canadians, in addition to the growing number of local providers.

“Litigation funding is a young, unregulated market in Canada,” she says. “We’re still in the early days, so it’s vital for clients to have someone on board who works in the area day in and day out, and who understands the wide variations in funding agreements that you see. Brokers can perform that role.”

According to Armstrong, the use of third-party funding has become increasingly mainstream in the Canadian class-action field, where providers typically offer adverse costs insurance and disbursement funding to plaintiffs in exchange for a cut of any damages ultimately awarded.

“Litigation funders usually require an opportunity to have a one-to-10 ratio of cost to damages, so the claims tend to be high-value — usually multi-million dollars,” Armstrong explains. “Due to the level of commitment, the due diligence on any deal can take some time.”

However, she says Canada will soon benefit from the recent growth in the field taking place in the U.K. and other jurisdictions that offer additional funding markets and models. 

“It has taken some time for these options to be tried and tested globally, but the good news for Canada is that they can be fast-tracked here because of the experience in the U.K. and elsewhere,” Armstrong says.

Here are some of the trends she sees hitting Canadian shores in the coming years.

Portfolio funding

“This concept has only emerged in the last three years, and even in the U.K., the model is still changing,” Armstrong says.

But she says the product has gone down well with law firms, who are the target market for portfolio funding. Armstrong says that it’s attractive to firms that operate in international arbitration or other fields where contingency agreements are less common.

“The funder provides stable financing to underpin the law firm, allowing them to pursue their own objectives, whether it’s providing alternative fee arrangements or freeing up capital in order to take risks on future cases,” Armstrong says. “It can be very flexible.”

Lower-value claims

Armstrong says plaintiffs with claims of less than $1 million have few options due to the focus of existing Canadian funders on high-value claims. But she expects that to change in the near future.

“There are a number of funding models now available that have been built to hedge the gap in the market for funding lower-value cases, which is important because it was previously seen as a product for multimillion-dollar claims that wouldn’t work for anything else. But that’s not the case,” Armstrong says.

“It’s a different, cheaper model that can work for claims needing as little as $50,000 of funding. One of the models we have seen in the Canadian market, similarly offered in the U.K., is where the funders capital is secured by an insurance policy, meaning the funder is looking at a different level of commitment and risk, because if the litigation is unsuccessful, then the funder is reimbursed by the insurer, which is why the cost can be kept lower.”

Claim monetization

This type of funding has emerged for plaintiffs with a judgment in hand, but they are struggling to collect on it from defendants. Armstrong says the enforcement process can be a long and costly one.

“After years investing time and money to secure a judgment, the appetite of a plaintiff to undergo another phase of legal proceedings that might involve litigation in a variety of different jurisdictions may well have diminished,” she says.

“Enforcement funders add value beyond the cash they invest, often they will have specialist in-house teams capable of formulating strategies to enforce in multiple jurisdictions,” Armstrong says. “We’ve received a few applications, but it’s largely unknown to Canada. Even in the U.K., this is a developing market.”

She says funders use different models but will typically purchase the judgment for a nominal amount upfront, and then split the proceeds of any recovery according to an agreement signed between the parties.

Funding insurance

Armstrong says the Canadian litigation funding market stands out compared with others around the world for its limited use of litigation insurance.

“In most funding transactions, litigation funding and litigation insurance go hand in hand, but in Canada litigation insurance is a new concept and  has not been utilized ,” she says. “Whether it’s insurance covering some of the capital or adverse costs, it can help to maximize the efficiency of these arrangements.”

For plaintiffs who struggle to meet the 10-to-one claim-to-cost ratio demanded by most traditional funders, Armstrong says that litigation insurance can help bridge the gap, and increase their attractiveness to litigation funders.

“Clients can ask for partial funding from the litigation funder, and then find other means to cover the rest of the cost. Maybe a law firm takes on the risk or the client pays, or they take out a bank loan. Then we can provide an insurance policy that covers the risk taken by the client or the law firm,” she says. “It’s an underestimated product that can make the difference between getting a funding deal or not.