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Champerty, Maintenance & Litigation Lending

By: Amanda Bafaro

March 5, 2019

Concerns over litigation lending have long be rooted in fears of champerty and maintenance; maintenance of an action in exchange for a promise to share in the proceeds of an action being champerty.

The public policy against champerty and maintenance is to discourage unnecessary litigation where a non-party may profit from the action and/or exert influence or control of an action.

The law has evolved, however, to permit financial involvement of non-parties (commonly known as third-party lenders) where to do so facilitates access to justice. The best example of this would be contingency fee agreements. Arguably, every lawyer in a contingency fee agreement has a financial interest in the outcome, will share in the profits of the action, and can influence and exert control over the litigation. However, contingency fee agreements also represent the only basis on which many litigants can obtain access to justice and are therefore permitted. Along these same lines, the Courts have allowed third-party lenders to provide funding for litigation where to do so helps a litigant achieve access to justice. This is most commonly seen in class actions or large scale commercial litigation where a funder provides money for the conduct of the lawsuit and includes provision for adverse costs if the case is lost. The issue of adverse costs is explicitly allowed for in Third Party Funding Agreements, and the value of that is taken into consideration as part of the agreed-upon fees.

Third Party Funding Agreements are a different lending vehicle entirely from a lawsuit loan to a plaintiff in the course of litigation. Third Party Funding Agreements are explicitly designed to fund a lawsuit and include provision for adverse costs. In class actions, these complex agreements are subject to Court scrutiny and approval.

A simple, straight forward lawsuit loan to a plaintiff in a personal action does not include nor contemplate exposure to adverse costs and is not priced for it either.

The personal injury defence bar is currently looking to expand the law applicable to Third Party Funding Agreements to personal loans obtained by the personal injury plaintiffs. If successful, this exploitation will represent a significant shift, potentially crippling the plaintiff lawsuit lending vehicle and frustrate the access to justice issue inherent in the product.

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Champerty, Maintenance & Litigation Lending