Litigation As An Investment Vehicle In Canada: An Introduction

By: Ainsley Brown

In a pervious post – Litigation … A New Investment Vehicle – I introduced you to the Therium, a third party litigation fund in England that was using litigation as an investment vehicle. At the time I thought Therium was a brilliant idea and this is position I still maintain.

Its times for a serious rethink of the Champerty Act

Despite my praise, maybe because of it, I wondered what would be the feasibility of such a scheme in Canada, more particularly Ontario?

If such a scheme didn’t already exist it ought to. Yes, why not? A third party investment fund willing to back meretricious claims that otherwise would never be pursued due to the lack of funding in exchange for a percentage of any funds recovered. What could be better? After all in Canada entrepreneurship in litigation is not an alien concept, we have “no win, no fee” schemes and Class Action legislation country wide basically allowing lawyers to underwrite Class litigation.

With these facts it should therefore be a simple matter of bringing together all the right commercial elements, right?

Well, not so fast, things are not as simple as that. There is still the matter of – the archaic and anachronistic – prohibitions of maintenance and champerty.

As will be argued later it is not that I believe that these prohibitions make a third party litigation fund impossible – not at all- however I do believe that until its repeal the Champerty Act, which prohibits both maintenance and champerty, such a fund would be severely hampered. In fact the fund itself could potentially be mired in litigation to defend its own existence.

So what are maintenance and champerty?

In the simplest of terms maintenance is the funding of litigation by a third party who is a stranger to the dispute. And champerty is the funding of a litigation by a stranger third party in exchange for a percentage of the win. However, I think Lord Justice Steyn in Giles v. Thompson put it best: “In modern idiom maintenance is the support of litigation by a stranger without just cause. Champerty is an aggravated form of maintenance. The distinguishing feature of champerty is the support of litigation by a stranger in return for a share of the proceeds.”

The main policy consideration that underlies the Champerty Act has a long vintage, dating back to an English statue of 1305 – yes that’s 705 years.

Stay tuned for Part II for details on the policy history of the Champerty Act and why its repeal is long over due.

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2 Replies to “Litigation As An Investment Vehicle In Canada: An Introduction”

  1. jason chuah

    Whilst there is almost universal acceptance that champerty and maintenance should not be treated as crimes and/or torts, before any attempt to abolish them goes ahead it is useful to consider and reflect on:
    – the reality is that there are corporations and businesses which will employ ruthless measures to bring their competitors to heel by hiding behind nominal litigants against their rivals
    -using costs as a deterrent is not always feasible
    – not entirely true that damage cannot proved when champerty or maintenance is committed
    – abuse of process as an alternative is not clearly established or developed as the old law of champerty and maintenance

    Not all old skins cannot carry new wine.

    jason

  2. Ainsley Brown

    Jason,

    You raise some very interesting points and I will take them under advisement in part II.

    Ainsley

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