On June 26, 2012, The Globe and Mail published an article on third party litigation funding (TPLF) making it impossible to deny any longer that TPLF has reached Canada. As in the other legal markets where TPLF occurs, it is still too early to predict the lasting effects in Canada. My reactions, however, are first to welcome the potential efficiencies TPLF may impose on the practice of law and second, to question whether Canada will prove as attractive a market for TPLF as some other countries.
On a selfish note, as a knowledge management lawyer, I welcome anything that makes me look less heretical to my colleagues when I speak of increasing efficiencies in the way we practice law. Canada has not been affected by the economic downturn of the past five years in the same way as Europe and the United States. The result of this on the legal profession is that we are behind on things like legal project management, alternative fee arrangements and anything that would encourage us to work more efficiently. We haven’t been pushed as hard by our clients so why respond as radically – despite what Cassandras like myself keep repeating. Perhaps having a third party involved in a case asking questions about file management and cost might bring us up to speed with other major legal markets.
Similarly, having a third party’s assessment of a file – in the instance where the funder has asked for an outside risk analysis of a case - might also facilitate the often awkward discussion with our clients about risk, cost and expectations and thereby protect us against incurring great loss on files which have little expectation of success.
Canada as a Market
Given the willingness of Canadian courts to limit non-pecuniary damages as well as amounts collected as “fair fees” in contingency cases, will Canada prove as attractive a market for third party litigation funders as some other legal markets? In 1978 the Supreme Court of Canada in a series of tort cases referred to as the “trilogy” caped the amount that could be awarded for non-pecuniary damages at $100,000. Although this amount has been indexed, the Supreme Court has proven unwilling to revisit the question of a cap on this type of damages.
Likewise, provincial courts have not been shy to review contingency fee arrangements. For example, the Ontario Court of Appeal upheld a motion judge’s decision to reduce a contingency fee of $27.5 million to $14.5 million in a class action case as it would leave members of the class without any cash from the settlement. Although this might not apply directly to third party litigation funders because, as in the case reported in the Globe and Mail, the court had approved the funding arrangement of 7% capped at $10,000,000 million, the fact that the court must approve the funding arrangement demonstrates its willingness to determine what constitutes fair compensation for the risk assumed by the funders.
So while some market is perhaps better than no market, the judicial scrutiny to which third party litigation funders may be subjected could render Canada a less attractive environment for funds that expect substantial percentages of large awards or settlements. In Canada, third party litigation funders may, like our lawyers, have to find ways of making more from less.