Litigation funding explained: 2026 guide for the general public

The cost of legal proceedings can be a major obstacle for individuals and businesses. It is in this context that an external financing solution, known as litigation funding, has developed. This mechanism makes it possible to cover legal costs without using one’s own resources, in exchange for a share of the potential gains.

This complete and neutral guide explains in simple terms the definition of litigation funding, how it works, its benefits, and the risks to be aware of.

Litigation funding: a simple definition

Litigation funding, or third-party litigation funding, is a mechanism whereby a specialized firm (the “third-party funder”) agrees to cover all or part of a claimant’s legal costs (an individual or a company) for court proceedings or arbitration.

In return, if the claimant wins and receives financial compensation (damages, for example), the third-party funder receives a share of the amounts recovered. This share is defined in advance in a contract. If the claimant loses the case, they generally do not have to repay anything to the funder, who then loses their investment.

It is therefore not a traditional loan, but a non-recourse investment tied to the outcome of the dispute.

How does third-party litigation funding work?

The litigation funding process generally takes place in several key steps, governed by a detailed contract between the claimant and the funder.

Who pays what?

• The third-party funder covers the agreed procedural costs. This often includes lawyers’ fees, expert fees, translation costs, court fees, and potentially the opposing party’s costs if ordered to pay them (depending on the jurisdiction and the contract).
• The claimant (plaintiff) provides the case, i.e., the right to bring legal action. They generally do not pay the costs of the proceedings, which allows them to bring a claim they could not have funded on their own.

How the funder is paid

The third-party funder’s compensation is entirely contingent on the success of the legal action. If and only if the claimant wins the case or reaches a favorable settlement, the funder receives its share.

Compensation structures can vary by contract, but often include:

• A percentage of the proceeds obtained (for example, 20 % to 40 % of the amounts received).
• A multiple of the amount invested (for example, 3 times the amount of funded costs).
• A combination of both.

All of these terms must be clearly set out in the funding agreement before the proceedings begin.

What happens if the case fails?

This is the fundamental principle of litigation funding: the financial risk is transferred to the funder. If the legal proceedings fail and the claimant receives no compensation, they have no obligation to repay the costs advanced by the funder. The funder alone bears the loss of its investment.

This non-recourse feature is the main difference from a traditional bank loan, which must be repaid regardless of the outcome of the dispute.

Which disputes and which costs can be covered?

Third-party funding does not apply to all types of disputes. Funders are very selective and prioritize cases with a high likelihood of success and significant financial stakes, in order to secure a potential return on investment.

The disputes most often funded are:

• Complex commercial disputes (breach of contract, unfair competition).
• International arbitration.
• Collective actions (class actions).
• Intellectual property disputes (patents, trademarks).
• Insolvency cases involving asset recovery.

Covered costs vary depending on the agreements, but may include:

• Lawyers’ fees.
• Expert fees (financial, technical, etc.).
• Court registry and procedural fees.
• Costs related to enforcing a court decision.

It is important to note that eligibility criteria and the types of costs covered vary considerably from one funder to another and depend on the jurisdiction.

What are the other options for funding litigation?

Litigation funding is only one of the options available to finance legal action. It is useful to compare it with alternatives.

Self-funding

This is the simplest method: the individual or company uses its own funds to pay legal costs.

Advantage: Full control over the proceedings and keeping 100 % of the gains.

Disadvantage: Full financial risk in the event of loss and potentially heavy impact on cash flow.

Legal expenses insurance

Legal expenses insurance is an insurance contract taken out before a dispute arises. The insured pays a regular premium and, if needed, the insurer covers legal costs.

Advantage: Pooled and predictable cost (the premium).

Disadvantage: Coverage limits are often low, and many types of disputes may be excluded from the policy.

Fee arrangements depending on the jurisdiction

In some countries (such as the United States), lawyers may offer contingency fee agreements ("contingency fee"). In France, the so-called “quota litis” agreement (where the lawyer would be paid only in the event of success) is prohibited. However, a mixed fee is possible: a fixed portion (often reduced) and an additional success fee.

Advantage: Reduces the client’s upfront financial burden.

Disadvantage: Generally covers only the lawyer’s fees, not other costs (experts, etc.), and its availability depends on local law and the agreement with the lawyer.

Advantages and disadvantages of litigation funding

Like any financial solution, litigation funding presents a mixed picture.

Advantages:

• Access to justice: It allows claimants without sufficient resources to assert their rights against powerful opponents.
• Risk transfer: The financial risk of the proceedings is fully borne by the funder.
• Preserving cash flow: Businesses can pursue litigation without affecting their operating budget.
• Case validation: The fact that a funder agrees to invest after a thorough review can be an indicator of the strength of the case.

Disadvantages:

• High cost: In the event of success, the funder takes a significant share of the proceeds, reducing the final amount received by the claimant.
• Rigorous selection process: Only the most promising cases with high financial stakes are accepted.
• Potential loss of autonomy: The contract may give the funder some oversight over strategic decisions, such as accepting a settlement offer.

What are the risks of litigation funding?

Before considering this option, it is essential to understand the associated risks and points to watch.

Total cost and sharing the proceeds

The main risk for the claimant is not losing money, but receiving a much smaller share of the proceeds than expected. If the final compensation amount is lower than forecast, the funder’s share can absorb a very large part—if not all—of the sum. A clear simulation of the different proceeds scenarios is essential.

Case selection and eligibility criteria

The risk here is rejection. Third-party funders reject a very large majority of the cases submitted to them. They conduct a very in-depth legal and economic analysis (“due diligence”) before committing. A funding refusal does not mean the case is bad, but simply that it does not match their risk and profitability criteria.

Control of the dispute and confidentiality

This is a major point of attention. The funding agreement must precisely define the funder’s role in the conduct of the dispute.

• Influence on decisions: Can the funder force the acceptance or refusal of a settlement offer?
• Confidentiality: Can sharing sensitive information with the funder compromise attorney-client privilege or the confidentiality of documents?

Pay close attention to the contract

The clauses relating to control of the dispute, settlement conditions, and confidentiality are the most important to review. It is essential to be supported by an independent legal advisor to negotiate and understand all the implications of the funding agreement before signing it.

Frequently cited players in the market

The litigation funding market is dominated by specialized international players. If you research this topic, you will probably come across the following names.

Burford capital, omni bridgeway, harbour, deminor, therium: what are these names doing in the SERP?

These companies (Burford Capital, Omni Bridgeway, Harbour Litigation Funding, Deminor, Therium) are among the largest and best-known third-party funders worldwide. They operate in many jurisdictions and are often involved in large-scale disputes, such as international arbitrations or class actions.

Their presence in search results indicates that they are leading players in this sector. They do not always target individuals directly for small disputes, but their activity shapes this entire financial and legal market.

FAQ on litigation funding

What is the meaning of litigation funding?

Litigation funding (litigation financing) is an agreement under which a third party finances a claimant’s legal costs. In the event of success, the funder receives a share of the proceeds. In the event of failure, the claimant owes them nothing.

What is financial litigation?

Financial litigation (financial disputes) refers to legal disputes involving financial institutions (banks, investment firms, insurers) or financial products and services. This can involve fraud, disputes over investment products, mismanagement, etc.

What are the funding options for litigation?

The main options for funding litigation are: self-funding (using your own funds), taking out legal expenses insurance, agreeing success-based fees with your lawyer (within legal limits), or using litigation funding via a third-party funder.

What are the risks of litigation funding?

For the claimant, the main risks are the high cost (a large share of the proceeds goes to the funder), losing some control over the lawsuit’s strategic decisions (such as accepting a settlement), and the complexity of funding agreements, which require careful review. The risk of losing the investment is, for its part, entirely borne by the funder.

Disclaimer: This article is provided for general information purposes only and does not constitute legal, financial, or investment advice. The rules applicable to litigation funding, lawyers’ fees, and the coverage of costs vary considerably across countries, jurisdictions, and the specific terms of each contract. It is essential to consult qualified professionals to obtain advice tailored to your personal situation.

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