Litigation finance, or litigation funding, is a financial arrangement where an external party agrees to cover the legal costs of a dispute in return for a share of any compensation recovered. This model allows companies to pursue valid claims undeterred by the expense and risk of complex proceedings. If the claim is unsuccessful, the funder typically bears the loss, making it a non-recourse form of funding.
Reform
Modern litigation funding began to take shape in the mid-1990s. Its evolution followed legal reforms that relaxed historical prohibitions on third-party involvement intended to prevent wealthy individuals from abusing the legal system. The Woolf Reforms reshaped civil justice to improve access, reduce costs and increase efficiency.
Into the mainstream
Litigation funding is now widely accepted in commercial disputes and arbitration. It is offered by many large and mid-sized practices, such as the London law firm www.forsters.co.uk. Courts regularly uphold funding agreements, recognising their role in widening access to justice and enabling businesses of all sizes to manage legal risk more effectively.
Types of litigation funding
Various funding structures exist in the UK, including third-party financing, insurance products such as After the Event cover, and agreements with law firms, such as Conditional Fee Agreements or Damages-Based Agreements. These options can be used individually or combined to maximise financial protection.
The main advantages of litigation funding lie in preserving cash flow, reducing exposure to costs and allowing businesses to focus resources on growth rather than litigation. With courts largely supportive of legitimate funding agreements, it has become an important tool for managing disputes strategically.
