Why litigation finance?
Litigation finance transforms legal claims from cost centres into assets. Here is why Canadian companies and law firms are adopting legal finance as a standard tool of corporate strategy.
What is litigation finance?
Litigation finance, also called legal finance or third-party funding, is a transaction in which a non-party provides capital to fund litigation or arbitration in exchange for a share of the proceeds. The capital is typically non-recourse: if the case does not succeed, the funder absorbs the loss.
For companies, it transforms litigation from a cost centre into a balance sheet asset. For law firms, it enables new business models and client relationships. For plaintiffs, it removes the financial barrier to justice.
Why companies use litigation finance
Preserve Operating Capital
Legal fees for complex commercial disputes can run into millions. Non-recourse funding removes this cost from the P&L, allowing companies to reinvest in growth.
Monetize Trapped Value
Pending claims, judgments, and awards represent real economic value. Monetization accelerates that value into immediate, usable capital.
Reduce Risk
With non-recourse funding, the company transfers the downside risk of litigation to the funder. If the case fails, the capital is not repaid.
Avoid Premature Settlement
Cost pressure drives settlement decisions. When fees are covered by a funder, companies can pursue claims to their optimal resolution.
Off-Balance-Sheet Treatment
Non-recourse litigation finance does not add debt to the balance sheet. It is an investment in an asset, not a loan against it.
Why law firms use litigation finance
Flexible Fee Arrangements
Portfolio finance enables firms to offer contingent, hybrid, and success-based fee structures to clients who cannot or will not pay hourly rates.
Accelerate Pending Fees
Fee financing allows firms to recognize revenue from pending matters without waiting for case resolution.
Invest in Growth
Capital facilities can fund firm expansion, new practice areas, and lateral hiring.
De-Risk Client Relationships
When a client faces liquidity constraints, the firm can bring in a funder rather than absorbing the risk itself or losing the engagement.
Permitted, growing, and increasingly mainstream
Litigation funding is permitted and growing in Canada. Courts have demonstrated openness to third-party funding, particularly where it promotes access to justice.
Class Actions
Ontario’s Class Proceedings Act (section 33.1) formalized the framework for court-approved third-party funding agreements. Courts assess fairness and reasonableness, comparing commercial terms to the statutory Class Proceedings Fund.
Commercial Litigation
Outside the class action context, funding is treated as a private commercial arrangement. No court approval is required for business-to-business disputes.
Arbitration
Third-party funding is increasingly accepted in domestic and international arbitration seated in Canada.
Security for Costs
Funders without Canadian assets may be required to post security for costs as a condition of court approval in class actions.
The General Counsel’s Guide to Litigation Finance in Canada
How Canadian companies are using non-recourse capital to turn legal claims into strategic assets.