Litigation funding
Third-Party Litigation Funding Explained
What third-party funding is, how it works in litigation and arbitration, and how it interacts with costs and insurance.
A teaching shape, not pricing. Funding pays for the case and takes a share of the upside; insurance caps the downside for a premium. Many matters use both.
What is third-party litigation funding?
Third-party litigation funding is when someone with no other interest in a dispute — typically a specialist fund — pays some or all of the costs of a claim in exchange for a share of any recovery. It is usually non-recourse, so the funder loses its investment if the claim fails.
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Key points
4 to know
- The funder is not a party but has a financial interest in the outcome.
- Funding is common in commercial litigation, arbitration and group actions.
- Some rules require funding to be disclosed.
- Funding often comes with ATE for adverse costs.
How it works
The claimant and funder agree a budget, the funder's return and the funder's rights, such as reporting and consultation.
The funder pays costs as they fall due; if the claim succeeds, the funder is paid from the recovery.
Funding in arbitration
Third-party funding is widely used in international arbitration.
The ICC Rules 2021 and ICSID Rules 2022 require disclosure of funders, and tribunals may consider funding when deciding security for costs.
Funding and adverse costs
A funder's involvement can affect costs: courts in England and Wales can order funders to pay adverse costs in some circumstances, which is one reason funders commonly require ATE insurance.
Where funding is restricted
Some jurisdictions restrict third-party funding of court litigation while permitting it in arbitration.
Check the forum's current rules before relying on funding.
Frequently asked
5 questions · answered in plain terms
Who provides third-party litigation funding?
Mainly specialist litigation funds, alongside multi-strategy investment funds, family offices and some insurers.
Do I have to disclose that my claim is funded?
It depends on the forum and rules. Several arbitral rules require disclosure of funders, and some courts do too.
Does a funder get a say in settlement?
Funding agreements usually give the funder consultation rights, and sometimes a mechanism for resolving disagreements about settlement.
Is third-party funding the same as a loan?
No. A loan must be repaid whatever the outcome; funding is usually repaid only from a successful recovery.
Can third-party funding be used by defendants?
Less commonly, since defendants do not usually produce a recovery to share; defence-side risk is more often addressed with insurance.
General information only. This page is not legal, financial, investment or insurance advice. Any insurance is subject to underwriting and to the terms of the policy wording issued.