A court case that takes four years to resolve spends money every month it stays open. Filing fees, disclosure, expert reports, counsel’s time, and the running costs of the business or household behind the claim all fall due long before a judge or tribunal delivers a decision. When the sums in dispute are large and the timetable is long, that gap between when costs are paid and when recovery arrives can matter as much as the merits. Litigation funding exists to bridge it.
Third-party litigation funding is an arrangement in which a party that is neither the claimant nor the lawyer puts capital into a legal claim in exchange for a share of any eventual recovery. The model now appears in group actions, commercial disputes, insolvency claims, and international arbitration, and its mechanics are worth understanding before evaluating any particular case.
What counts as a large-scale claim
Size is not only about the headline number. A claim is usually described as large-scale when the cost of running it is high relative to the resources of the party bringing it, when the timeline is measured in years rather than months, or when many claimants share a common grievance and must be organised into a single proceeding.
International arbitration shows the scale clearly. In 2025 the Hong Kong International Arbitration Centre handled arbitrations with a combined amount in dispute of about HK$126.2 billion, roughly US$16.2 billion, and the average administered case carried about HK$418.8 million, or US$53.7 million, according to HKIAC’s published case statistics. Cases of that size can absorb years of procedural work before any award is issued.
The mechanics: capital that is not a loan
Most commercial litigation funding is non-recourse. If the claim fails, the funder generally receives nothing and the claimant is typically not required to repay the money advanced. If the claim succeeds, the funder receives an agreed share of the recovery. Because repayment is tied to the outcome, the arrangement is generally treated as a form of asset purchase or investment rather than a loan, and it is usually not reported to credit bureaus.
That structure explains why funders screen cases closely. A funder is taking on downside risk, so it looks for claims with a realistic prospect of recovery and a defendant able to pay. Advances are usually paid as a lump sum or drawn down over time, with no monthly instalments while the case is pending.
The main funding structures
The categories are not fixed. Some funders specialise in a single sector or claim size, and consumer products are structured differently from commercial ones. Terms depend on the case, the jurisdiction, and the individual agreement.
The categories are not fixed. Some funders specialise in a single sector or claim size, and consumer products are structured differently from commercial ones. Terms depend on the case, the jurisdiction, and the individual agreement.
Why long claims need funding more than short ones
Costs in large claims are front-loaded. Disclosure, expert evidence, and procedural applications all fall due early, while recovery may not arrive for years. Funding can cover not only legal fees but also disbursements, and in some jurisdictions it can help meet security for costs or adverse costs orders.
A second effect is on negotiation. A claimant that can meet costs as they arise is under less cash-flow pressure to accept a discounted early settlement. Funders also spread risk across a portfolio of claims, which allows them to support individual cases that would be difficult to finance on a standalone basis.
How a funder assesses a claim
Review typically turns on three questions: is the claim legally sound, what is it worth, and can the defendant pay? A defendant’s ability to satisfy a judgment, whether through its own balance sheet or through insurance, is often as important to a funder as the legal merits.
Other factors can include the amount claimed, the margin of recovery relative to the investment, the experience of the legal team, and the law of the claimant’s home jurisdiction. The claimant’s lawyer must normally consent to the arrangement, and funders generally do not provide legal advice or refer clients to lawyers.
Regulation varies by jurisdiction
England and Wales has permitted litigation funding since 1967, and a 2005 Court of Appeal decision confirmed that funding is a legitimate way to finance litigation. A review of civil litigation costs published in 2010 gave the practice further judicial endorsement, and a voluntary Code of Conduct for litigation funders followed in 2011, with compliance oversight provided by the Association of Litigation Funders.
The legal position continues to develop. In 2023 the UK Supreme Court held in PACCAR that certain funding agreements were a form of damages-based agreement and therefore unenforceable under section 58AA of the Courts and Legal Services Act 1990. The decision prompted a close review of how such agreements are drafted.
Elsewhere the framework differs. Hong Kong opened third-party funding to arbitration and related proceedings in 2017, subject to codes of practice, and its arbitration centre issued further guidance in 2018. Singapore amended its Civil Law Act in 2017 and extended permitted funding in 2021 to domestic arbitration and certain proceedings in the Singapore International Commercial Court. The European Parliament called in 2022 for the European Commission to consider regulation of the practice. In the United States, rules vary from state to state and trace back to the older doctrines of champerty and maintenance, which still limit some arrangements in some jurisdictions.
Disclosure and transparency
Courts and arbitral institutions increasingly expect funding arrangements to be disclosed to the tribunal or to other parties. HKIAC recorded one third-party funding disclosure in 2025 under its 2024 arbitration rules, along with seven disclosures of outcome-related fee structure agreements. Transparency requirements differ between seats and institutions, and proposals for mandatory disclosure have been discussed in the United States.
International industry reporting continues to track growth in the use of third-party funding across commercial and arbitration disputes, alongside ongoing debate about how the practice should be supervised. Those two themes, expansion and supervision, now sit together in most discussions of the market.
What funding does not do
Funding does not make a weak claim viable, and it does not guarantee an outcome. It also does not replace legal advice. The cost of capital is real: a claimant weighs the share of any recovery that goes to the funder against the alternative of not bringing the claim at all. In several jurisdictions, lawyers treat funding as one option among several rather than a default choice. Because terms depend on the case, the jurisdiction, and the agreement, there is no single standard rate or structure.
Frequently asked questions
Litigation funding does not change the strength of a claim. It changes who can afford to wait for it to be resolved. That is the whole of its contribution, and it is also its limit. The model matters most in disputes that are strong enough to attract capital and slow enough to need it, and it has little to offer in cases that are neither. For anyone weighing a large claim, the practical question is not whether funding exists in principle, but whether the economics of that particular dispute justify the cost of the capital required to see it through.
