Litigation is expensive, slow, and uncertain. A company with a strong commercial claim, or a group of consumers with a legitimate grievance, may still find that the cost of pursuing it outstrips the expected benefit – or simply exceeds what they can pay upfront. Litigation funding exists to bridge that gap.
What litigation funding actually is
Litigation funding – also called third-party litigation finance or legal financing – is an arrangement in which a party with no prior connection to a dispute provides capital to a claimant, or to the claimant’s law firm, to cover legal fees and costs. In exchange, the funder receives a share of the recovery if the case succeeds. If it does not, the funder generally recovers nothing.
That last point is the feature people most often misunderstand. The arrangement is typically non-recourse, meaning repayment is contingent on the outcome. The funder is not a lender in the ordinary sense, because a loan usually must be repaid whether or not the borrower’s venture works out. As the U.S. Government Accountability Office described it in a 2022 report, plaintiffs generally do not have to repay the funding if their lawsuit is unsuccessful.
Three parties usually appear in a funding arrangement: the claimant, the claimant’s lawyers, and the funder. The funder’s role is financial. It assesses the claim, advances money, and receives an agreed share of any proceeds. It does not become a party to the lawsuit.
How the money moves: the payment waterfall
Funding agreements are built around what practitioners call a waterfall: an order in which the proceeds of a settlement or judgment are distributed. The precise sequence is negotiated case by case, and in collective or class proceedings it may also require court approval. A common structure is set out below, though the details vary widely by jurisdiction, case type, and contract.
| Stage of distribution | Typical treatment (varies by agreement) |
|---|---|
| Advanced litigation costs | Recovered by the funder from the proceeds |
| Funder’s return | An agreed multiple of the amount advanced, or a percentage of the recovery |
| Claimant’s legal fees | Contingency or success fee where the lawyers are working on that basis |
| Remainder to the claimant | Paid under the terms of the agreement and any settlement or court order |
Source: ICLG’s overview of litigation funding (updated July 2026). The figures and ratios themselves are not fixed; they depend on the risk, the likely duration, and the negotiating position of each side.
Two structural choices shape the economics. In a single-case arrangement, the funder backs one dispute and carries its risk alone. In a portfolio arrangement, it finances a bundle of cases, typically cross-collateralised so that proceeds from all of them feed a single waterfall. Portfolio funding lets a funder offset an unsuccessful case against successful ones, which can make the terms more favourable for the claimant. By 2025, portfolio deals made up the majority of new U.S. commercial funding commitments, according to Westfleet Advisors’ 2025 market report.
Consumer funding and commercial funding are different businesses
It helps to split the market in two. Consumer funding serves individuals, often in personal injury or similar claims, and the amounts are relatively small. Commercial funding serves companies, law firms, and large group claims, and the amounts are typically much larger. The two operate under different rules and carry different risks.
| Consumer funding | Commercial funding | |
|---|---|---|
| Who is funded | An individual claimant | A company, a law firm, or a claimant group |
| Typical scale | Often small sums relative to the claim | Frequently in the millions |
| Common uses | Living expenses, fees, case costs | Legal fees, costs, working capital, portfolio finance |
| Regulatory focus | State or provincial consumer rules in some places | Disclosure rules and court oversight in specific settings |
The categories come from the GAO’s description of the U.S. market, and the same broad split appears in other countries. In the United States there is no single federal statute governing the industry. Consumer funding is regulated at state level in various jurisdictions, while disclosure of commercial funding arrangements has developed through court rules and case-specific orders rather than one national requirement.
What a funder looks at before it commits
Because the funder absorbs the downside, the quality of its case selection matters enormously. Underwriting typically weighs the legal merits, the size and collectability of any eventual award, the expected duration, and the creditworthiness of the defendant. A claim that is legally strong but likely to take a decade to resolve can be less attractive than a weaker claim that settles quickly.
Duration risk is easy to underestimate. Court timetables, appeals, and settlement negotiations sit largely outside the parties’ control, so funders increasingly model possible exit routes before a case concludes. Some buy insurance against the risk of an adverse costs order or an unexpectedly long dispute, and a secondary market has emerged in which funders can sell interests in a case to other investors.
Who stays in charge of the case
This is one of the most closely watched questions in the field, and the general principle is that the claimant and the claimant’s lawyer retain control. The funder’s money buys a share of the proceeds, not the right to run the litigation. Settlement decisions, procedural choices, and strategy usually remain with the funded party and its counsel.
Agreements may still give a funder certain rights – for example, a say over a settlement below a specified threshold, or the ability to terminate funding if the case changes materially. Those clauses are negotiated, and where they go too far they can attract scrutiny. In 2025 the Civil Justice Council’s review of litigation funding recommended codifying a prohibition on funders controlling funded litigation, including settlement, as part of a light-touch regulatory framework.
The rules differ from one jurisdiction to the next
There is no global rulebook. Legality is broadly settled in several major markets, but the mechanics – how agreements are classified, what must be disclosed, and how consumer deals are policed – vary considerably.
| Jurisdiction | Broad position |
|---|---|
| Australia | Funding upheld by the High Court in 2006; disclosure rules for class actions; funders subject to general corporations and consumer law |
| England and Wales | Long-established; a 2023 Supreme Court ruling reshaped how percentage-based agreements are classified, reform is under review |
| United States | No single federal regime; consumer funding regulated at state level in places; disclosure developing through local rules and court orders |
The English position changed in July 2023, when the UK Supreme Court held in R (PACCAR Inc) v Competition Appeal Tribunal that agreements paying a funder a percentage of damages are damages-based agreements. That classification made many such agreements unenforceable unless they complied with specific regulations; the decision was 4:1, with a dissenting judgment. In June 2025 the Civil Justice Council recommended legislation to reverse the effect of the ruling and to place funding on a clearer statutory footing, and the government signalled an intention to legislate. The discussion since has focused less on whether funding is acceptable and more on how it should be structured and disclosed.
A short history of a once-controversial idea
For centuries, English common law treated maintenance and champerty – supporting another person’s lawsuit, especially for profit – as unlawful. Over time those doctrines weakened, and Australia became an early laboratory for modern funding. After several states abolished maintenance and champerty, and after legislation allowed insolvency practitioners to fund claims, the question of whether commercial funding was lawful reached the High Court of Australia.
In 2006, in Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd, the court held that third-party funding was not an abuse of process. The majority wrote that “many people seek profit from assisting the processes of litigation,” and reasoned that funding arrangements should be judged by whether they harm the administration of justice, not by the fact of profit alone. The Harvard Center on the Legal Profession’s history of the field traces how that ruling helped normalise the model, first in Australia and then further afield.
Access to justice and the oversight debate
The argument in favour of funding is straightforward: it lets claims proceed that would otherwise be abandoned for lack of money, and it gives smaller parties a way to face better-resourced opponents. That rationale has been endorsed by courts in a number of jurisdictions.
The argument for oversight is equally straightforward. Because the funder is a commercial investor, critics have questioned whether funding encourages marginal claims, extends disputes, or reduces the share of any recovery that reaches the claimant. Some of those concerns have been directed at transparency in particular. Governments and regulators have considered the issue from both sides: the U.S. Congress has seen proposals to require disclosure in class and mass actions, the U.S. International Trade Commission proposed a disclosure rule for certain patent investigations in April 2026, and the Civil Justice Council recommended targeted rather than sweeping regulation in England. Even bodies that disagree about the merits tend to converge on the view that disclosure is a proportionate way to manage conflicts and protect the integrity of proceedings.
As funded claims have entered the mainstream, they have become a regular subject of broader legal sector reporting, which tends to examine the mechanics of these arrangements – how they are priced, financed, and resolved – rather than their basic legitimacy. That shift in emphasis is itself a marker of how far the model has travelled.
What to check in a funding agreement
Anyone considering funding is, in effect, giving up a share of a future recovery. The terms deserve the same scrutiny as any significant financial contract.
- The size and basis of the funder’s return – a multiple of the amount advanced, a percentage of the recovery, or a combination – and how it interacts with legal fees.
- The waterfall – the order in which costs, returns, and remaining proceeds are distributed.
- Control and consent – which decisions remain with the claimant, and which require the funder’s agreement.
- Termination and exit – what happens if the funder withdraws, the case changes, or the agreement is sold.
- Disclosure – what must be told to the court, the other side, or other group members, and what stays confidential.
- Independent advice – whether the arrangement has been reviewed by a lawyer who is not connected to the funder.
Frequently asked questions
Do I have to repay litigation funding if I lose?
In a typical non-recourse arrangement, no – the funder absorbs the loss. But structures vary, and some consumer products, or agreements in jurisdictions with different rules, can operate more like loans. Always confirm the terms in the specific agreement.
Does the funder take control of my case?
Generally not. Decisions about strategy and settlement usually remain with the claimant and the lawyer, though agreements often give the funder defined rights, such as consent over a low settlement. The Civil Justice Council in England has recommended codifying limits on funder control.
Is litigation funding legal?
It is lawful and established in many jurisdictions, including Australia, England and Wales, and the United States. The conditions attached to it – enforceability, disclosure, fee limits – differ by country and, in the United States, by state.
How much does a funder take?
There is no universal figure. Returns are usually expressed as a multiple of the money advanced or as a percentage of the recovery, and they reflect the risk and duration of the case. In collective proceedings, courts sometimes review whether the proposed return is reasonable.
Will the other side find out about the funding?
It depends on the forum. Disclosure of the fact and identity of a funder is required in many arbitrations and in class action contexts, while the detailed terms are often kept confidential. In U.S. federal litigation there is no single nationwide disclosure requirement, though individual courts have imposed them.
Who can obtain funding?
Both individuals and businesses, across consumer and commercial claims. Funders select cases, so not every claim will be accepted, and they generally favour matters with a clear legal basis and a realistic prospect of recovery.
Where this is heading
The clearest trend is normalisation. Funding is increasingly treated as one option in ordinary dispute planning, alongside insurance, staged fee arrangements, and careful settlement strategy, rather than as a last resort. That maturity brings its own questions: how to measure a market whose definitions vary so widely, how much disclosure is enough without undermining confidentiality, and how to keep the funded party’s interests at the centre as structures grow more elaborate. The answers will keep shifting with the rules, which is why anyone weighing funding should start with the law that applies to their dispute, not with the headline figure a funder might offer.
