Third Party Litigation Funding – Canada and the U.S

October 2018

Third-party litigation funding is endorsed by many policymakers as a tool of access to justice, regardless of wealth as often the expense of litigation can otherwise deter litigation against deep pocketed wrongdoers.

We, at Minerva Valuations, view litigation funding as both a necessary solution, in a world where large corporations have near endless litigation resources, and an unique asset class, which is being increasingly used to enhance returns by the super wealthy.

Take the case of Hulk Hogan v. Gawker, in which Mr. Hogan’s litigation fees were backed by super investor, Peter Thiel – see video below:

The history of litigation funding is deeply rooted in concepts of maintenance and champerty. Maintenance is defined as the support of litigation by a stranger without just cause. Champerty is a form of maintenance in which the third party supports the litigation in return for a share of the proceeds.

The United Kingdom market was one of the first to have recorded instances of individuals participating in this asset class. By the start of the twentieth century, maintenance and champerty were both crimes and thus prohibited. It was only until after the Second World War that the introduction of legal aid in 1950 created a state-funded exception to the historic prohibition on litigation funding.

Here in North America, the concept has begun to gain more popularity and acceptance over the past decade. Typically used in class actions and personal injury cases, litigation funding, in the form of contingency fees, is not available in criminal, quasi-criminal and family law matters.  In a recent case, Houle v. St. Jude Medical Inc., 2017 ONSC 5129, Justice Perell laid out some principles that must be satisfied in order for Canadian courts to approve a third-party funding agreement:

  1. The third-party funding agreement must have procedural, technical, and evidentiary requirements that enable the court to scrutinize the agreement.
  2. The third-party funding must be necessary;
  3. The third-party funder must make a meaningful contribution to access to justice or behaviour modification;
  4. The litigation funder must not be overcompensated given the particular circumstances of the case for assuming the litigation risks, in whole or in part.
  5. The funding agreement must not interfere with the lawyer-client relationship, including retention by the plaintiffs of autonomy, control and carriage of the litigation; and
  6. The funding agreement cannot be not illegal on some basis independent of champerty and maintenance.

Litigation Funding has become its own asset class with returns often exhibiting minimal correlations to other asset classes. It often is expected to have similar returns as that of private equity, across a portfolio, but with a shorter duration. Data from Goldman Sachs and Bloomberg display litigation funding as a slightly better alternative on a return on invested capital basis (i.e. “Cash on cash”) – see graph below:

In the United States, with overlapping federal and state jurisdictions, including 96 federal judicial districts and 50 individual US states, it appears that parties must consider a variety of further factors including:

  1. Governing law of the litigation finance agreement
  2. The location of the parties
  3. The venue of the particular litigation; and
  4. The jurisdiction in which a judgment may eventually need to be enforced.

New York

Litigation finance is permitted in New York; As of this posting, there are no statutes or regulations in New York directly applicable to third-party litigation funding, let alone any that expressly prohibit, or that would have the effect of prohibiting, third-party litigation funding.


Litigation finance is permitted in Illinois. While the common law prohibition of champerty has been abolished, there remains a statutory prohibition; however, ordinary commercial litigation finance transactions would not be problematic.


Litigation finance is generally permitted in Delaware; The doctrines of champerty and maintenance remain applicable.


In California, litigation finance is generally permitted by state law. So unlike many other states, the doctrines of champerty and maintenance were never adopted into the state’s laws.


We, at Minerva Valuations, have connections to many of these litigation funders in both Canada and the U.S and we can assist in providing referrals, as needed. Please call us at your convenience for a referral.


At Minerva Valuation Advisors, we are trained, as business valuators, appraisers, bankers and financial analysts, in a variety of settings including in tax planning valuations, family law valuations, shareholder disputes valuations and merger & acquisitions valuations and advisory. We are not your typical business valuator or appraiser, we attempt to connect the dots using a variety of perspectives to give you some of our best insights.

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