Litigation Funders UK | Audley Capital

Litigation funding is a financing arrangement in which an independent third party provides capital to fund the costs of a legal claim. In return, the funder receives a portion of any financial recovery if the case succeeds. If the case is lost, the claimant typically has no obligation to repay the funding. This guide covers the full landscape of how commercial litigation funding works, who uses it, and how to navigate the UK market.

What is litigation funding — and why does it matter?

Pursuing a commercial claim is expensive. Legal fees accumulate before a penny is recovered, and for many businesses, the cost of funding a dispute out of working capital is simply not viable — regardless of the strength of the underlying case. Litigation funding exists to solve that problem.

In the United Kingdom, litigation funders provide the capital needed to bring or defend commercial claims in exchange for a share of the proceeds if the case is successful. The arrangement is non-recourse in nature: if the case fails, the funder bears the loss and the claimant owes nothing back. This fundamentally changes the economics of commercial litigation for businesses, law firms, insolvency practitioners, and claim owners.

Direct answers to the most common questions

What is litigation funding?

Litigation funding — also called third party litigation funding, commercial litigation finance, or dispute finance — is a financing arrangement in which an independent third party provides capital to fund the costs of a legal claim. In return, the funder receives a portion of any financial recovery if the case succeeds. If the case is lost, the claimant typically has no obligation to repay the funding.

What is legal funding?

Legal funding is a broad term used to describe any external financial support for legal proceedings or legal costs. It includes litigation funding, after-the-event insurance, conditional fee arrangements, and damages-based agreements. In commercial practice, the term is often used interchangeably with litigation funding, though strictly it covers a wider range of mechanisms.

How does commercial litigation funding work?

A claimant — typically a business, insolvency officeholder, or high-value individual — identifies a meritorious claim but lacks the capital or appetite to fund it directly. They approach a litigation funder, who assesses the claim's legal merits, likely quantum, enforceability of any judgment, and the overall return profile. If the funder agrees to proceed, a funding agreement is entered into. The funder then meets legal costs and disbursements as the case progresses. On a successful outcome, the funder is repaid its outlay and takes its agreed return from the proceeds. The claimant receives the balance.

Who uses litigation funders?

Litigation funders are used by a wide range of parties including:

• Businesses pursuing commercial claims such as breach of contract, fraud, shareholder disputes, and professional negligence
• Law firms looking to offer fully funded solutions to their clients
• Insolvency practitioners and officeholders bringing claims on behalf of estates — including wrongful trading, preference, and antecedent transaction claims
• Shareholders and directors in contentious corporate disputes
• General counsel at larger organisations who want to manage litigation expenditure off the balance sheet
• Introducers and professional advisers who identify funded opportunities on behalf of clients

The UK litigation funding market

The United Kingdom has one of the most developed commercial litigation finance markets in the world. Funders operate across a range of dispute types including commercial litigation, arbitration, class actions, and insolvency-related claims. The market has grown significantly over the past two decades, driven by rising legal costs, the growth of the Commercial Court, and increasing awareness among claimants of funding as a viable option.

Litigation funders in the UK operate on a non-recourse basis, meaning the risk of loss sits entirely with the funder rather than the claimant. This is a critical feature of third party litigation funding that distinguishes it from conventional loan financing.

The Association of Litigation Funders of London (ALF) operates a voluntary code of conduct that a number of market participants have adopted, though the UK litigation funding sector is not currently regulated by the Financial Conduct Authority in the same manner as consumer finance. As the market has matured, funders have broadened the types of cases they support and the structures they are willing to offer.

At Audley Capital, we operate with a straightforward set of principles: assess cases with rigour, behave transparently, and work constructively with claimants and their legal teams throughout the life of a matter.

How litigation funders assess cases

Before committing capital, a funder will conduct detailed due diligence on the claim. This typically involves reviewing materials provided by the claimant and their legal team and forming an independent view of the key commercial considerations. For a deeper look at what litigation funders look for in a case, see our dedicated guide.

Legal merits

The funder will want to understand whether the claim has reasonable prospects of success on the legal and factual issues. This is not simply about whether a case can be filed — it is about whether, on a balanced assessment, the claim is likely to succeed at trial or achieve a favourable resolution.

Quantum and recovery

A meritorious claim with insufficient quantum is unlikely to attract funding. Funders consider the size of the claim relative to the anticipated legal costs. The commercial relationship between spend and likely recovery needs to make sense for all parties.

Enforceability

Winning a judgment is one thing. Recovering against it is another. Funders assess whether the defendant is solvent, whether assets are traceable, and whether enforcement is realistic. A strong case against an entity with no recoverable assets is not an attractive proposition for a funder.

Legal representation

Funders want to see that the claimant is represented by, or will be represented by, a competent legal team with relevant expertise. The quality of the legal analysis and advice is an important factor in the funder's own assessment of risk.

Stage of the proceedings

Funding is available at various stages — before proceedings are issued, during ongoing litigation, or at appeal stage. The stage of the case will affect the funder's assessment of costs, risk, and likely timeline to resolution.

How pricing and returns in litigation funding generally work

Litigation funding is not a loan. There is no fixed interest rate and no monthly repayment. Instead, the funder's return is contingent on success and is agreed as part of the funding arrangement. For full details on how litigation funding is priced, see our cost guide.

Common return structures

There are broadly two structures commonly used in the UK market:

Multiples of deployed capital. The funder receives a multiple of the amount it has committed or deployed — for example, two or three times the funded amount. This structure is straightforward and predictable.

Percentage of recovery. The funder receives an agreed percentage of the gross recovery. This can vary depending on the size of the case, the risk profile, and the amount being funded.

In some cases, funders use a hybrid structure that applies whichever of the two calculations produces the higher return. It is important for claimants to understand the full economics of the arrangement before signing a funding agreement.

After-the-event insurance

Funders will often require or recommend that after-the-event (ATE) insurance is obtained alongside the funding. ATE insurance provides protection against an adverse costs order — the risk that, if the case is lost, the claimant is ordered to pay the defendant's legal costs. The premium for ATE insurance is usually deferred and contingent, meaning it is only payable on a successful outcome.

Comparing litigation funding with other legal finance options

Litigation funding is one of several mechanisms available to claimants and their legal teams. Understanding how it compares with alternatives is important for making informed decisions. For a detailed comparison, see our article on litigation funding vs CFA vs DBA.

Conditional fee arrangements (CFAs)

Under a CFA, a law firm agrees to take a case on reduced or deferred fees, with a success fee payable if the case is won. CFAs reduce the claimant's upfront exposure but do not eliminate it — disbursements still need to be met, and the success fee can be significant.

Damages-based agreements (DBAs)

A DBA is an arrangement under which the law firm takes a percentage of the damages recovered rather than charging time-based fees. DBAs can be attractive but are subject to regulatory constraints under the Damages-Based Agreements Regulations 2013.

Self-funding

Many businesses fund their own litigation out of general working capital. This is straightforward but carries full cost risk, ties up capital that could be deployed elsewhere, and can create pressure to settle prematurely.

Bank financing for legal costs

Some lenders offer facilities to finance litigation costs, though these are recourse arrangements — the borrower owes repayment regardless of outcome. This is a materially different risk profile from non-recourse litigation funding.

When litigation funding may not be suitable

Not every claim is fundable, and it is worth being direct about this. Litigation funders will generally not support claims that:

• Have poor or uncertain legal merits on the available evidence
• Are too small to justify the funder's cost of deployment and overhead
• Involve defendants with no realistic prospect of satisfying a judgment
• Carry jurisdictional or enforcement difficulties that are not adequately mitigated
• Lack competent legal representation or a credible litigation strategy

There are also cases where the claimant's own commercial objectives may be better served by other arrangements. A good funder will be honest about this at an early stage. To assess your own position, see whether your claim is suitable for litigation funding.

What the process typically looks like from first enquiry to funded matter

The journey from initial enquiry to a funded matter generally follows this sequence:

1. Initial enquiry. The claimant or their solicitor contacts the funder with a summary of the claim, the likely quantum, and the stage of proceedings.
2. Preliminary review. The funder conducts a high-level assessment of the claim and decides whether to proceed to detailed due diligence.
3. Due diligence. The claimant provides documentation including pleadings, counsel's opinion, financial information about the defendant, and other relevant materials.
4. Term sheet. If the funder decides to proceed, it will issue a term sheet setting out the proposed financial terms.
5. Finalising the funding agreement. The detailed funding agreement is negotiated and executed.
6. Funding commences. Once the agreement is executed, the funder begins meeting costs as they fall due.

For more on the documents typically needed at due diligence, see our guide on what documents litigation funders need.

How funders, claimants, and law firms work together

A funded litigation matter involves a three-way working relationship between the funder, the claimant, and the legal team. In the UK, it is well established that litigation funders do not control the conduct of the litigation — that remains the responsibility of the claimant and their solicitors. The funder's role is to provide capital, engage in strategic discussions where invited to do so, and monitor the progress of the matter.

Practically speaking, this means the funder will typically want regular updates from the legal team, will be consulted on significant strategic decisions such as settlement discussions, and will have agreed rights under the funding agreement to withdraw funding in defined circumstances — such as a material deterioration in the prospects of the case.

A well-drafted funding agreement clarifies the boundaries of each party's role from the outset and reduces the risk of disagreement as the matter progresses. For guidance on choosing between litigation funders, see our selection guide.

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