When Should You Use Litigation Funding?
A strategic decision guide: understanding when litigation funding makes commercial sense for claimants, law firms, and funders.
The Fundamental Question
Litigation funding isn't right for every case. The question isn't "Can I get funding?" but rather "Should I use funding given my specific circumstances?"
This guide walks through the strategic factors that make funding the optimal choice versus when you should pursue alternative approaches.
What Are the Ideal Scenarios for Litigation Funding?
1. Strong Case, Limited Capital
Scenario: You have a meritorious claim worth £3M+ with solid evidence and strong legal grounds, but you lack the £500K-£1M needed to finance litigation through to judgment or settlement.
Why funding works: This is the textbook case for litigation funding. You have value locked in a legal claim that cannot be monetized without capital. Funding unlocks that value—you keep 60-80% of the recovery instead of 0% by abandoning the claim.
Real Example:
SME supplier owed £4.5M by a multinational for breach of contract. Strong case, excellent barrister opinion, but the SME only has £200K liquid capital and can't risk it all on litigation. Funder deploys £800K, case settles for £4M, SME nets £2.8M after funding costs. Without funding: £0.
2. Cash Flow Preservation Strategy
Scenario: You're a profitable business or law firm with available capital, but deploying £1M+ into 2-3 years of litigation would damage cash flow, limit growth investments, or create balance sheet problems.
Why funding works: Even if you can afford litigation, funding keeps capital available for core business operations, acquisitions, hiring, or other higher-ROI opportunities. Litigation funding is off-balance-sheet and doesn't count as debt.
Real Example:
Law firm with 3 large commercial cases representing £5M in WIP over 30 months. Instead of constraining cash flow, the firm secures portfolio funding for £2M. This frees capital to hire 2 new partners, invest in tech, and pursue higher-margin work while maintaining litigation upside through success fees.
3. Adverse Cost Risk Transfer
Scenario: You're facing a well-funded opponent in a UK court where losing means paying their legal costs—potentially £2M+ in addition to your own costs. The financial risk is existential even though your case has merit.
Why funding works: Funders typically arrange After-the-Event (ATE) insurance to cover adverse costs. This transfers tail risk away from you entirely—if you lose, the insurer pays the opponent's costs, not you.
Real Example:
Tech startup suing a FTSE 100 company for patent infringement. Opponent has £5M litigation budget and aggressive tactics. Startup has good case but can't risk £2M+ adverse costs exposure. Funder provides capital + £3M ATE insurance. Startup litigates with confidence knowing downside is capped.
4. Insolvency & Restructuring Claims
Scenario: You're an insolvency practitioner with claims that could benefit creditors, but there's no estate capital available to pursue litigation. Or you're an insolvent company's creditor seeking to monetize a claim.
Why funding works: Insolvency litigation is uniquely suited to third-party funding because there's literally no alternative capital source. Funding allows IPs to pursue director misfeasance, antecedent transactions, or other claims that increase estate recoveries for creditors.
Real Example:
Liquidator identifies £8M in recoverable antecedent transactions but estate has £0 available to fund litigation. Funder agrees to 40% of net recovery. Case succeeds, recovers £6.5M, funder receives £2.6M, creditors receive £3.9M instead of £0.
5. Class Actions & Group Litigation
Scenario: You're organizing a class action or group litigation with potentially thousands of claimants. Collectively the claim is worth £50M+, but no individual claimant can afford to fund it.
Why funding works: Class actions are capital-intensive (£5M-£20M+ in legal fees) and high-risk. Litigation funders specialize in these cases because the scale justifies the due diligence cost and capital deployment. Claimants couldn't pursue these claims any other way.
Real Example:
Consumer rights class action against financial services provider affecting 15,000 customers. Individual claims average £8K (uneconomical to litigate alone). Funder deploys £4M for litigation, case settles for £65M, claimants receive ~£4K each net of costs vs. £0 without funding.
6. International Arbitration
Scenario: You have a commercial arbitration claim (investment treaty, construction, energy) requiring multi-year proceedings in London, Paris, Singapore, or Hong Kong. Expected costs: £2M-£10M+.
Why funding works: International arbitration is expensive, slow (3-5 years typical), and often cross-border, making it difficult to deploy corporate capital. Funders are highly active in this space because cases tend to have large quantum, sophisticated parties, and enforceable awards.
When Funding May NOT Be Appropriate
Litigation funding isn't always the optimal choice. Consider alternatives if:
✗ Case value is below £1M
Most commercial funders won't consider cases below £1M-£2M in quantum because due diligence costs aren't justified. For smaller claims, consider Conditional Fee Arrangements (CFAs), Damages-Based Agreements (DBAs), or ATE insurance alone.
✗ You have abundant low-cost capital available
If you're a well-capitalized corporate with plenty of liquid capital and no better use for it, self-funding may be cheaper than paying a funder 30-40% of recovery. Run the numbers: is the risk transfer and cash flow benefit worth the cost?
✗ Case merits are weak or speculative
Funders won't back weak cases, and you shouldn't waste resources pursuing claims with low win probability. If multiple funders decline after due diligence, that's a strong signal to reconsider whether to litigate at all.
✗ Defendant is judgment-proof
Even if you win, if the defendant has no assets and no insurance, you won't recover anything. Funders won't touch these cases because there's no return available. Focus on enforcement strategy before seeking funding.
✗ You want to maintain 100% control
Funders typically require consent rights on major settlement decisions to protect their investment. If maintaining complete autonomy is non-negotiable, funding may not suit your needs.
Decision Framework: Should You Seek Funding?
Ask yourself these five questions to determine if funding makes strategic sense:
Is my case strong enough to win on merits?
If you don't have confidence in winning, don't litigate—funded or otherwise. Seek independent counsel opinion.
What's the alternative to funding?
Abandon claim (£0)? Accept lowball settlement? Drain business capital? Take on debt? Compare each alternative against keeping 60-70% of recovery via funding.
Can the defendant actually pay?
Winning is worthless if you can't enforce. Investigate defendant solvency and insurance coverage before proceeding.
What's the expected timeline and cost?
If litigation will take £500K and 18 months, you might self-fund. If it's £3M over 4 years, funding becomes much more attractive.
Is preserving capital strategically important?
Even if you can afford litigation, would that capital be better deployed growing your business, making acquisitions, or avoiding debt covenants?
Next Steps: Exploring Funding Options
If litigation funding makes strategic sense for your situation, the next steps are:
- Obtain independent counsel opinion on the merits and prospects of success (funders will require this anyway)
- Prepare a case summary including quantum, evidence overview, key witnesses, and expected costs/timeline
- Approach funders or engage a funding adviser to run a competitive process and negotiate optimal terms
- Complete due diligence (typically 4-8 weeks depending on case complexity)
- Negotiate and execute Litigation Funding Agreement with optimal pricing and terms
Unsure If Funding Is Right for Your Case?
Audley Capital provides independent strategic advice on whether litigation funding makes sense for your specific circumstances. We'll assess your case, explore alternatives, and help you make an informed decision.
Related Articles: What is Litigation Funding? | Funding Costs & Pricing | What Cases Get Funded | Complete Guide 2025
