Judicial Scrutiny of Third Party Litigation Funding Agreements in Canadian Class Actions

The emergence of third party litigation funding agreements — contracts by third parties funding litigation in which they have no direct stake or claim, usually in exchange for a percentage of the recovery — has animated vigorous debate about some of the most fundamental issues in the legal system. Some observers have pegged renewed hope on these agreements to increase access to the courts, economize judicial resources, and punish wrongdoers, while others voice concern over their potential to result in undue manipulation of litigation, frivolous lawsuits, subordination of control to rapacious investors, commodification of claims, and other negative social consequences. As these debates rage, the phenomenon has been left to judges to regulate. This paper examines recent trends in third party litigation funding of class proceedings in Canada and analyzes the efforts by Canadian judges to bring scrutiny to such funding arrangements. The paper argues that these efforts generally succeed in balancing the concerns of proponents and opponents of such agreements.