What is Third Party Litigation Funding? A Complete Guide

How does third party litigation funding work in practice?

A claimant (individual, company, or law firm) with a strong legal claim but insufficient resources approaches a litigation funder. The funder evaluates the case merit, potential damages, likelihood of success, and the defendant's ability to pay any judgment.

If approved, the funder provides capital to cover litigation costs—legal fees, expert witnesses, court fees, and other expenses. The claimant pursues the case without financial strain, and the funder monitors progress.

Upon successful resolution (judgment or settlement), the funder receives an agreed return— typically a multiple of their investment or percentage of the recovery. If the case loses, the funder absorbs the loss and the claimant owes nothing. This "non-recourse" structure is what distinguishes litigation funding from traditional lending.

Is third party litigation funding legal in the UK?

Yes, absolutely. Third party litigation funding is legal, well-established, and growing in the UK. Historically, the common law doctrines of maintenance (supporting another's litigation) and champerty (sharing in litigation proceeds) prohibited such arrangements.

However, these rules were progressively relaxed through judicial decisions and legislative changes. The landmark case of Arkin v Borchard Lines Ltd [2005] provided important clarity on funders' costs liability, and the industry has grown substantially since then.

Today, TPLF is recognized as improving access to justice by enabling meritorious claims that might otherwise go unpursued. Courts routinely deal with funded cases and have developed procedures for managing funding arrangements appropriately.

How is third party litigation funding regulated?

In the UK, TPLF is primarily self-regulated through the Association of Litigation Funders (ALF), which published a voluntary Code of Conduct. ALF members commit to capital adequacy requirements, conflict management procedures, and ethical standards.

Courts have inherent jurisdiction to manage funding arrangements, particularly regarding costs orders against funders and disclosure requirements. The Supreme Court's decision inPACCAR Inc v Competition Appeal Tribunal [2023] has prompted renewed discussion about regulatory frameworks.

Working with an ALF member or similarly reputable funder provides assurance that they operate to recognized professional standards and have adequate capital to meet their commitments.

What are the benefits of third party litigation funding?

What are the potential drawbacks?

Who uses third party litigation funding?

TPLF users span a wide spectrum. Individuals with personal injury, professional negligence, or commercial claims use funding when they lack resources to pursue their cases. Small and medium businesses fund commercial disputes against larger opponents.

Even large corporations increasingly use litigation funding strategically—not from necessity, but to manage litigation as an asset class, free up working capital, or diversify risk across their dispute portfolio.

Law firms use funding to support contingency arrangements, take on larger cases, and grow their practices without capital constraints. Insolvency practitioners fund claims on behalf of estates that lack funds to pursue recoveries.