Third-Party Litigation Funding in Ontario Explained

Not every plaintiff with a strong claim has the financial resources to see it through to judgment. Litigation can take a long time, and the costs — legal fees, disbursements, expert reports, and the risk of an adverse costs order — can be significant well before any recovery arrives. Third-party litigation funding exists to bridge that gap.

This guide explains what litigation funding is, how a typical arrangement works, what funders look for, and the trade-offs worth weighing before you sign one.

What Third-Party Litigation Funding Is

Litigation funding is an arrangement where a funder — typically a specialized financing company unconnected to the underlying dispute — pays some or all of a plaintiff's litigation costs, in exchange for a share of any amount recovered if the claim succeeds. If the claim fails, the funder typically has no right to repayment from the plaintiff, since the arrangement is generally structured as non-recourse.

The core appeal for a plaintiff is straightforward: it allows a claim to be pursued without draining personal or business resources, and it shifts some of the financial risk of losing onto the funder.

How a Funding Arrangement Typically Works

1. The plaintiff, often through their lawyer, approaches a funder with details of the claim and its merits.
2. The funder conducts its own due diligence, assessing the strength of the claim, the likely recovery, and the defendant's ability to actually pay a judgment.
3. Terms are negotiated, including what portion of the litigation costs the funder covers and what share of any recovery the funder receives.
4. The litigation proceeds, with the plaintiff's lawyer continuing to represent the plaintiff's interests, not the funder's, throughout the case.
5. On resolution, if the claim succeeds, the funder is repaid according to the agreed terms, generally out of the recovery itself; if the claim fails, the funder generally absorbs the loss.

What Funders Look For

Litigation funders are selective, because they are taking on real financial risk. Common factors funders assess include:

• Merits of the claim — how strong the legal and factual case appears
• Quantum of likely recovery — whether a successful outcome would be large enough to justify the funder's investment and return
• Collectability — whether the defendant would actually be able to pay a judgment, since even a winning claim is worthless against an insolvent defendant
• Timeline — how long the case is likely to take, since funders generally prefer matters with a reasonably foreseeable path to resolution
• Quality of legal representation — funders often want confidence in the lawyer handling the case

Risks and Trade-Offs to Weigh

Litigation funding is not free money, and it comes with real trade-offs:

• Cost of the arrangement — the funder's share of any recovery reduces what the plaintiff ultimately keeps, sometimes substantially, depending on the terms negotiated.
• Loss of some control — funding agreements can include provisions about settlement approval or ongoing reporting to the funder, which some plaintiffs find intrusive.
• Not every claim qualifies — funders decline the majority of claims presented to them, since their business model depends on selecting only strong prospects.
• Interaction with costs risk — funding covers your own litigation costs, but the separate risk of an adverse costs order, if you lose, may still need to be addressed, sometimes through adverse costs insurance alongside the funding arrangement.
• Complexity of the agreement itself — funding contracts are legal documents with real consequences; having your own lawyer review the terms independently, separate from your litigation lawyer, is generally wise.

Is Litigation Funding Right for You?

Litigation funding tends to make the most sense when:

• [ ] Your claim is for a significant amount, large enough to interest a funder and justify the share they will take
• [ ] You lack the financial resources to fund the litigation yourself
• [ ] The defendant appears to have the ability to pay if you succeed
• [ ] You have realistically assessed that the funder's share is worth the trade-off for being able to pursue the claim at all
• [ ] You are prepared to have the funding agreement reviewed independently before signing

It tends to make less sense for smaller claims, including most Small Claims Court matters, where the amounts involved are unlikely to attract funder interest relative to the effort of underwriting the arrangement.

Frequently asked questions