Litigation Funding vs CFA vs DBA: What Is the Difference?

Understanding how litigation funders and legal funding works is essential before exploring specialized funding options for specific practice areas.

Before deciding how to finance a commercial claim, it is worth understanding what options exist. In the UK, the three most commonly discussed structures for funding litigation outside of self-funding are: third party litigation funding, conditional fee arrangements (CFAs), and damages-based agreements (DBAs).

Each structure has different characteristics, different risk profiles, and different commercial consequences for the claimant and the legal team. This article explains each one clearly and compares them on the issues that matter most.

Third party litigation funding

In a litigation funding arrangement, an independent funder — not the law firm — provides the capital to meet the costs of the claim. The claimant and the funder enter into a funding agreement. If the case succeeds, the funder receives an agreed return from the proceeds. If the case fails, the funder loses its capital and the claimant owes nothing.

Key characteristics:

• Non-recourse: the claimant bears no financial loss if the case fails
• The funder — not the claimant or the law firm — carries the cost risk
• Covers solicitor fees, counsel fees, disbursements, and potentially ATE insurance
• The funder does not control the litigation, but has agreed consultation rights
• Return is agreed upfront: typically a multiple of capital deployed or a percentage of recovery

When it works well: Commercially significant claims where the claimant does not wish to bear cost risk, where legal costs are substantial, and where the claim value justifies the funder's return. It is also commonly used by insolvency officeholders and by law firms offering funded solutions to their clients.

Conditional fee arrangements (CFAs)

A CFA is an agreement between a claimant and their solicitor (and sometimes counsel) under which the legal team agrees to work on a reduced or deferred-fee basis, with a success fee payable if the case is won.

Under a CFA, if the case is lost, the legal team does not recover its fees. If the case is won, the legal team recovers its standard fees plus a success fee — which can be up to 100% of the base fees, though in practice it is often lower.

Key characteristics:

• Reduces the claimant's upfront legal costs but does not eliminate them — disbursements still need to be met
• The success fee is payable from the proceeds on a successful outcome
• The claimant still carries the risk of an adverse costs order from the other side (typically addressed via ATE insurance)
• Does not cover all costs: expert fees, court fees, and other disbursements are still a claimant liability unless separately addressed
• Available at the discretion of the law firm — not all firms offer CFAs and not all cases will be accepted on this basis

When it works well: Cases where the legal costs are primarily in legal fees rather than disbursements, where the law firm is confident enough in the merits to accept the risk, and where the claimant can manage the residual cost exposure.

Damages-based agreements (DBAs)

A DBA is an arrangement under which the law firm agrees to act for a percentage of the damages recovered, rather than charging time-based fees. If the case is lost, the law firm receives nothing. If the case is won, the firm takes its agreed percentage from the recovery.

DBAs in England and Wales are governed by the Damages-Based Agreements Regulations 2013. In commercial litigation, the maximum permitted percentage under a DBA is 50% of the damages recovered (excluding any element attributable to costs). In practice, the percentage agreed is usually significantly lower.

Key characteristics:

• No upfront legal costs for the claimant where a pure DBA is used
• The law firm's entire fee is contingent on success
• The claimant still faces adverse costs risk if the case is lost, usually requiring ATE insurance
• Hybrid DBAs — which combine a reduced time-based fee with a success element — are increasingly used in practice, though their validity under current regulations remains subject to some legal debate
• DBAs are less commonly offered than CFAs, in part because of the regulatory complexity and the all-or-nothing fee structure

When it works well: Cases where the expected quantum is large relative to the legal costs, making a percentage of recovery a commercially attractive proposition for the law firm. Also cases where the law firm is willing to take on the full fee risk.

Comparing the three structures

Which structure is right for a given case?

There is no universal answer. The right structure depends on the specific facts, the nature of the legal costs involved, the risk profile of the claim, and the commercial preferences of the claimant.

Some general observations:

• Litigation funding tends to be most appropriate where costs are high in absolute terms, the claimant has no appetite for cost risk, and the claim value makes the funder's return commercially sensible
• A CFA may be more appropriate where a strong relationship exists with the law firm, the claimant can manage disbursement costs, and the success fee is proportionate
• A DBA may be suitable where the anticipated damages are very large relative to legal costs, making a percentage-based fee attractive to both sides

In some cases, these structures can be combined. A law firm might act on a CFA or hybrid DBA alongside third party funding for disbursements and ATE insurance — creating a blended arrangement that manages different aspects of the cost risk.

For more detail on how the cost structure in a funded matter works, see our article on how much litigation funding costs. If you are trying to decide which structure suits your matter, our guide on how to choose between litigation funders may also be useful.