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Example of litigation financing process

Legal financing (also known as litigation financing, professional funding, settlement funding, third-party funding, third-party litigation funding, legal funding, lawsuit loans and, in England and Wales, litigation funding) is the mechanism or process through which litigants (and even law firms) can finance their litigation or other legal costs through a third party funding company.

Similar to legal defense funds, legal financing companies provide money for lawsuits but are more often used by those without strong financial resources. Furthermore, legal financing is more likely to be used by plaintiffs, whereas legal defense funds are more likely to be used by defendants. Money obtained from legal financing companies can be used for any purpose, whether for litigation or for personal matters. On the other hand, money obtained through legal defense funds is solely used to fund litigation and legal costs.

Legal financing companies provide a nonrecourse cash advance to litigants in exchange for a percentage share of the judgment or settlement. Despite some superficial similarities to an unsecured loan with a traditional lender, legal financing operates differently from a loan. Litigation funding is generally not considered a loan, but rather as a form of an asset purchase or venture capital. Legal funding advances are not debt and are not reported to the credit bureaus, so a litigant's credit ratings will not be affected by a litigant obtaining a legal funding advance.

Legal financing companies normally provide money in the form of a lump sum payment, and generally, no specific account is established for the litigant. If the case proceeds to trial and the litigant loses, the third-party funding company receives nothing and loses the money they have invested in the case.[1] In other words, if the litigant loses, they do not have to repay the money. In addition, litigants generally do not have to pay monthly fees after obtaining legal financing. Instead, no payments of any kind are made until the case settles or judgment is obtained, which could occur months or years after legal funding is received. Accordingly, to qualify for funding with a legal financing company, a litigant's case must have sufficient merit that the company deems its investment in the case to be worth the risk.

In tort litigation, legal financing is most commonly sought in personal injury cases, but may also be sought for commercial disputes, civil rights cases, and workers' compensation cases.[2]

History

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While third-party litigation funding is not a new concept, it is relatively new to the United States and has its roots in the old English principles of champerty and maintenance. Some U.S. states still prohibit or materially limit champerty and others allow it with some restrictions.[3]

Little financial assistance is available from traditional sources to help injured plaintiffs cover the cost of litigation or pay their personal expenses while a case remains pending. Plaintiffs may turn to credit cards and personal loans to cover litigation fees, attorneys' fees, court filings, personal finances, and living expense shortfalls while they wait for litigation to be resolved. The obligation to repay that debt is not affected by the outcome of the plaintiff's lawsuit.

In many jurisdictions, and throughout the United States, attorney rules of ethics preclude an attorney from advancing money in the form of loans to their clients.[4]

The introduction of legal financing provides qualified plaintiffs with a means of paying the cost of litigation and their personal expenses, without having to resort to traditional borrowing.

Qualification for litigation financing

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Legal funding companies do not provide legal advice to applicants, nor do they provide referrals to attorneys. Thus, to qualify for legal financing a plaintiff must have already hired an attorney. To apply for legal financing, the plaintiff must complete an application form and provide supporting documents.[5]

As legal financing companies only recover their investment if the plaintiff recovers money from the funded lawsuit, the merits of the plaintiff's case must be strong, meaning that the plaintiff has a strong argument that the defendant is liable for the damages claimed in the lawsuit. The defendant in the case (the person or company being sued) must also have the ability to pay a judgment, whether by virtue of its own financial strength or through insurance coverage. The injured party's attorney must also agree to the legal financing and generally must to sign an agreement consenting to the legal financing.

Additional qualification or approval factors may include the total amount of damages sought, a sufficient potential margin of recovery to justify the investment, the background of the applicant, and the laws of the applicant's place of residence.[6] Some legal financing companies limit their investment to specific types of lawsuits, such as a personal injury claim or commercial litigation.[7]

Benefits

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Lawsuits are expensive and may progress slowly, over a period of many months or years. During that time, many plaintiffs may feel considerable financial pressure and may need money to pay the costs of litigation, as well as the costs of supporting themselves. When obtained during the course of tort litigation, legal financing may help a plaintiff who has immediate needs, such as medical care, and cannot afford to wait until the litigation concludes to obtain money. A severely injured plaintiff might have significant personal expenses due to disability or loss of income and may face significant personal and medical debt, and as a result, may feel considerable pressure to enter into an early settlement. A defendant may recognize a plaintiff's financial need and offer a low settlement in anticipation that the plaintiff will not be able to afford continued litigation.

The desperate situation of plaintiffs is reflected in a finding by the American Legal Finance Association, an industry group for legal financing companies, that over 62% of funds provided to plaintiffs are used to stop a foreclosure or an eviction action.[8]

Types

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Litigation funding has two major divisions: consumer financing, commonly referred to as pre-settlement funding or plaintiff advances, and commercial financing. Consumer financing generally consists of small advances between $500 and $2000. Prominent consumer financing companies include LawCash, Oasis Financial, and RD Legal Funding. Commercial financing for companies to pursue legal claims generally is dedicated toward the payment of attorney fees and litigation costs.[9]

Litigation funding may also come in the form of crowdfunding, in which case hundreds or tens of thousands of individuals can help to pay for a legal dispute, either investing in a case in return for part of a contingent fee or offering donations to support a legal right that they believe in.[10]

Criticisms

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One concern about litigation funding is that it is costly to the plaintiff, and may take a very large chunk out of the plaintiff's eventual settlement or verdict. After paying attorney fees and the amount owed to the legal financing company, the plaintiff may receive little or no additional money beyond any amount received from the advance.[2]

There is some concern that, if widely adopted, litigation finance could prolong litigation and reduce the frequency of settlements of civil lawsuits.[11] A study of civil lawsuits published in the Journal of Empirical Legal Studies found that between 80% and 92% of cases settle.[12] The study found that most plaintiffs who decided to pass up a settlement offer and proceed to trial ended up recovering less money than if they had accepted the settlement offer.[12]

The legal financing industry has come under fire from critics for actual and potential legal and ethical violations. For example, some companies have been found to violate state usury laws (laws against unreasonably high-interest rates), champerty laws (laws prohibiting third parties from furthering a lawsuit for an interest in the recovery), or to require action by the applicant's lawyer that might be unethical under state rules of professional conduct.[13]

A major criticism of litigation funding is that its cost is disproportionate to the risk accepted by litigation finance companies.[2] As lenders thoroughly evaluate claims before they agree to provide financing, they have a very high likelihood of recovering their fee at the conclusion of the plaintiff's case, and further limit potential losses by providing financing in amounts that are relatively small as compared to the plaintiff's anticipated recovery.[2]

In June 2011, the New York City Bar Association addressed some of the ethical issues raised by lawsuit financing in an ethics opinion about third-party non-recourse legal funding. It concluded that with due care a lawyer could help a client obtain legal financing and that non-recourse litigation financing “provides to some claimants a valuable means for paying the costs of pursuing a legal claim, or even sustaining basic living expenses until a settlement or judgment is obtained.”[13] Many lawyers advise clients to pursue legal financing only as a last resort when other forms of financing are not available.[2][12]

In recent years, some high-profile cases have inspired criticism of legal financing.[14] For example, an international legal battle financed by UK-based litigation financing firm Therium[15] involved self proclaimed heirs of the Sultan of Sulu and the Malaysian government, which was ordered to pay $14.9 billion as compensation by Spanish arbitrator Gonzalo Stampa. The award, which was eventually struck down by the Hague Court of Appeal on June 27, 2023,[16][17] inspired calls for stronger regulation, over such concerns as corruption, profiteering, and undue foreign influence.[18][19] In 2022, the European Parliament called on the European Commission to introduce regulations covering third-party litigation funding.[20] The demand followed a report by German MEP Axel Voss on the same issue.

Worldwide

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Australia

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Commercial litigation funding has been allowed in Australia in the late 1990s, in parallel with developments in the US, Canada and Asia.[21][22]

England and Wales

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Litigation funding has been permitted in England and Wales since 1967 (and in insolvency matters since the late nineteenth century). However, recent years have seen its growing acceptance as part of the litigation landscape.[23]

Litigation funding can be broadly split into 4 different forms in the UK, Conditional fee agreements, Damages Based Agreements, Fixed Fees and Third Party Funding.

In 2005, in the case of Arkin v Borchard Lines Ltd & Others, the English Court of Appeal made it clear that litigation funding is a legitimate method of financing litigation. In January 2010, Chapter 11 of the Jackson Review of Civil Litigation Costs was published, effectively providing judicial endorsement to litigation funding.[24]

In November 2011, a Code of Conduct for Litigation Funders was launched, which sets out the standards of best practice and behavior for litigation funders in England and Wales. The Code of Conduct provides transparency to claimants and their solicitors. It requires litigation funders to provide satisfactory answers to certain key questions before entering into relationships with claimants. Under the Code, litigation funders are required to give assurances to claimants that, among other things, the litigation funder will not try to take control of the litigation, the litigation funder has the money to pay for the costs of the funded litigation and the litigation funder will not terminate funding absent a material adverse development. The Code has been approved by Lord Justice Jackson and commended by the Chair of the Civil Justice Council, Lord Neuberger of Abbotsbury, the President of the Supreme Court.[25] The regulatory body responsible for litigation funding and ensuring compliance with the Code is the Association of Litigation Funders (ALF).[26]

In 2023, the Supreme Court of the United Kingdom decided in R (on the application of PACCAR Inc) v Competition Appeal Tribunal[27] that litigation funding agreements were forms of damages-based agreements and thus unenforceable due to s.588AA of the Courts and Legal Services Act 1990.[28]

The Adam Smith Institute think tank published a report in October 2024, calling for greater regulation in third party litigation funding. Recommendations included regulation of the funding by the Financial Conduct Authority, in the same way as other investment products, and increased transparency.[29]

Hong Kong

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Hong Kong legalised third party funding in 2017 after an amendment for its use with arbitration, mediation and related proceedings.[30]

With the changes to legislation third party funders in Hong Kong have been made subject to codes of practices and safeguards to assure industry standards.[31] The Hong Kong International Arbitration Centre (HKIAC) provided further guidance in 2018[32] to give additional guidance for arbitral tribunals, parties to arbitration and third-party funders.

The HKIAC also recognised that although third party funding is frequently associated with claimants lacking the financial resources for their claim, it may also be used by parties wishing to ‘hedge cost risks or reduce capital outlay.’[33]

HKIAC statistics suggest that these legislative changes have contributed to an increasing use of third party funding within arbitrations.[34] For example, in 2020, out of the 318 arbitrations that were submitted, parties made disclosure of third-party funding in 3 of them. In 2021 this increased to 6 out of a total of 277. Then in 2022, 74 disclosures were made from a total number of 344 arbitrations. However, it remains too early to draw longer-term conclusions regarding the application and popularity of funding within Hong Kong.[35]

In terms of the global importance of Hong Kong as a destination for arbitrations, in 2021, the Queen Mary International Arbitration Survey ranked Hong Kong in the top five most preferred seats for arbitration, alongside London, Singapore, Paris and Geneva.[34]

India

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There is no express law regulating third party funding, but court precedents have recognized the practice and put in restrictions. Agreements between funders and litigants are subject to Indian Contract Act, 1872.[36]

Russia

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There is no specific legislation in Russia governing litigation funding, however, it is not prohibited by Russian law. In 2019, Chairman of the Council of Judges of the Russian Federation Viktor Momotov stated that third-party investment in litigation could increase access to the courts by parties who could not otherwise afford the cost of litigation.[37] In 2020, the Council of the Federation Committee on Constitutional Legislation and State Building discussed the need for legislation or regulation to allow a litigation funding industry to develop.[38]

Singapore

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The first recorded use of third party funding in Singapore was in 2017 following an amendment to the Civil Law Act (CLA).[39]

Following a positive response from the business community regarding to ability to use third party funding the Ministry of Law (MinLaw) initiated a public consultation in 2018 to assess if the scope of funding should be increased. As a result of this consultation the Ministry of Law (MinLaw) extended the application of third party funding from June 28, 2021 to include domestic arbitration proceedings, certain proceedings in the Singapore International Commercial Court (SICC), and related mediation proceedings.[40]

Singapore is one of the most popular ‘arbitration seats’ globally.[41]

South Africa

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Litigation funding is generally unregulated in South Africa, but it appears that it has quietly become part of the South African legal landscape, getting little to no resistance in the face of what used to be portrayed as contra bonos mores champertous agreements, which are, by definition, illegal.[42]

A pactum de quota litis is defined as “an agreement to share the proceeds of one or more lawsuits” and it is the duty of the court to ascertain, of its own motion, the lawfulness of such agreement as it cannot lend its assistance to the execution of agreements and transactions which are contrary to law. An initial distinction between an acceptable and an objectionable pactum de quota litis was formulated in Hugo & Möller N.O. v Transvaal Loan, Finance and Mortgage Co, 1894 (1) OR 336. The Court held that a fair agreement to provide the necessary funds to enable an action to proceed, in consideration for which the person lending the money is to receive an interest in the property sought to be recovered, must not be considered per se to be contra bonos mores. The court was concerned about potential abuses of such agreements, such as using them for purposes of gambling with litigation cases.

Several cases have provided further guidelines for such litigation financing agreements. In Hadleigh Private Hospital (Pty) Ltd t/a Rand Clinic v Soller & Manning Attorneys and Others 2001 (4) SA 360 (W), the Court affirmed that an agreement to share the proceeds of one or more lawsuits is not necessarily unlawful and must indeed be considered acceptable when a litigant is not in a financial position to fund his litigation completely. In another case, the South Africa Supreme Court of Appeal held, in PriceWaterHouse Coopers Inc and Others v National Potato Co-operative Ltd, 2004 (6) SA 66 (SCA), that the "although the number of reported cases concerned with champertous agreements diminished, courts have still adhered to the view that generally they are unlawful and that litigation pursuant to such agreements should not be entertained". However, the Supreme Court sought to clarify any disagreements and took a different route.

The Supreme Court ruled that:

  • An agreement in terms of which a stranger to a lawsuit advances funds to a litigant on condition that his remuneration, in case the litigant wins the action, is to be part of the proceeds of the suit is not contrary to public policy or void, and
  • The existence of such an assistance agreement cannot be the base of a defense in the action. In June 2010, in an interlocutory ruling rendered in the same case, the High Court found that the funder is, after all, a co-owner of the claim and should, therefore, be joined as a party to the trial. Therefore, an order for costs may be made directly against him to the extent that the funded party cannot support them even after the termination of the funding agreement.[42]

United States

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Legal financing is a fairly recent phenomenon in the United States, beginning in or around 1997. Litigation funding is available in most U.S. jurisdictions. Litigation funding is most commonly sought in personal injury cases, but may also be sought for commercial disputes, civil rights cases, and workers' compensation cases. The amount of money that plaintiff receive through legal financing varies widely but often is around 10 to 15 percent of the expected value of judgment or settlement of their lawsuit.[2] Some companies allow individuals to request additional funding at a later date. The amount of money available depends on the policies of the financing company and the characteristics of the plaintiff's lawsuit.

One major division in litigation finance is between consumer and commercial financing companies. While consumer financing generally consists of small advances between $500 and $2000 directly for individual plaintiffs, commercial financing for companies to pursue legal claims generally is dedicated towards payment of litigation costs.[2] The largest legal financing companies in the space are commercial, including public companies.

Litigation funders generally evaluate cases based on legal merit, amount of damages, and financial viability of the defendant. Many funders also specialize in specific areas of litigation or have restrictions on funding size and funding structure.[43]

See also

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References

[edit]
Revisions and contributorsEdit on WikipediaRead on Wikipedia

Legal financing

View on Grokipedia
from Grokipedia
Legal financing, commonly referred to as third-party litigation , involves a non-party providing capital to a litigant—typically a —to cover litigation expenses such as attorney fees and costs, in exchange for a predefined share of any favorable settlement or proceeds, with provided on a non-recourse basis meaning the bears the of loss if the case fails. The practice traces its modern origins to in the 1990s, where courts permitted funding arrangements after abolishing doctrines like that historically prohibited third-party involvement in litigation for profit, and it expanded to the in the early amid growing commercialization of legal claims as investable assets. Empirical data indicate that third-party funding correlates with increased litigation volume and court caseloads, as funded cases tend to proceed more frequently to trial or settlement due to reduced financial barriers for claimants. While advocates highlight legal financing's role in enhancing access to for impecunious plaintiffs and enabling risk diversification for law firms and corporations, critics contend it distorts settlement dynamics by introducing profit-motivated third parties who may pressure for aggressive tactics or prolonged disputes, potentially inflating overall litigation costs and incentivizing marginal claims despite non-recourse structures designed to align interests with meritorious cases. remains patchwork across jurisdictions, with some U.S. states mandating disclosure of funding agreements to mitigate conflicts, though federal oversight is absent and empirical assessments of systemic impacts on judicial efficiency vary.

Fundamentals

Definition and Core Principles

Legal financing, also known as third-party litigation funding, refers to arrangements in which a non-party funder provides financial support to a litigant for litigation or costs, in exchange for a share of any proceeds from a successful outcome. This funding typically covers expenses such as attorney fees, expert witnesses, and court costs, enabling parties who lack resources to pursue claims that might otherwise be abandoned. The practice has expanded in commercial disputes, where businesses or law firms seek capital to sustain high-stakes cases. A core principle of legal financing is its non-recourse structure, meaning the funder bears the full risk of loss and receives no repayment if the case fails, with repayment contingent solely on success. This aligns incentives by tying returns to case merits, as funders conduct rigorous , including assessments of legal viability, evidence strength, and potential recovery value before committing capital. Funding agreements are typically arm's-length contracts that preserve the litigant's control over strategic decisions, such as settlement negotiations, to avoid champerty or violations in jurisdictions prohibiting third-party interference. Another fundamental aspect is the investment-oriented nature, where funders—often specialized firms or hedge funds—deploy capital as a commercial venture, evaluating cases like portfolio assets based on risk-adjusted returns. Returns are structured as a multiple of the invested amount, commonly ranging from 2x to 5x, reflecting the high-risk profile. Ethical guidelines, such as those from bar associations, emphasize transparency, client consent, and avoidance of conflicts, ensuring funding does not undermine professional independence or confidentiality. While proponents highlight enhanced access to , the model's for-profit basis has drawn for potentially prolonging disputes or incentivizing marginal claims, though empirical on systemic effects remains limited. Third-party litigation funding differs from contingency fee arrangements primarily in the identity and role of the funder. In contingency fees, the plaintiff's attorney advances litigation costs and defers their own fees in exchange for a of any recovery, operating under duties to the client that prioritize the client's interests. By contrast, third-party funders are independent entities without obligations, providing non-party capital solely on a contractual basis for a share of proceeds, often negotiating terms that may encroach on the attorney's contingency share without direct client representation responsibilities. Unlike traditional loans for legal expenses, which require repayment of principal and regardless of case outcome and thus impose personal on the borrower, third-party litigation funding is typically non-recourse, meaning funders bear the full loss if the case fails and recover only from successful judgments or settlements. This investment-like structure aligns incentives with case merit rather than borrower creditworthiness, as funders conduct independent on claim viability before committing capital. Legal expense , another related mechanism, involves policyholders paying premiums upfront for coverage of defense or pursuit costs, with reimbursements limited to predefined limits and no profit-sharing from recoveries beyond recouping premiums and deductibles. Third-party , however, functions as outcome-contingent equity rather than , enabling access for high-value claims where insurance caps or exclusions apply, without prior premium obligations. Historically, third-party evolved by distinguishing itself from prohibited common-law doctrines of —supporting litigation without a legitimate interest—and champerty—such funding with a profit stake—which aimed to prevent frivolous suits and officious interference but were largely abolished or reformed by the late in jurisdictions like the and to accommodate modern access-to-justice needs. Contemporary funding agreements, often vetted for non-interference with judicial processes, thus operate legally where pure maintenance or champertous bargains remain void, as in certain U.S. states retaining partial bans as of 2023.

Historical Development

Origins in Common Law Prohibitions

The doctrines of , champerty, and barratry formed the core of early prohibitions against third-party involvement in litigation, emerging in medieval to safeguard the judicial process from exploitation by influential actors. Maintenance denoted the provision of financial or other support to a litigant without any lawful in the outcome, champerty specified such support in return for a share of any recovery, and barratry involved the repeated stirring up of groundless suits. These practices were deemed both criminal offenses and civil torts, punishable by fines, , or forfeiture, as they threatened to flood courts with frivolous claims and enable by nobles or officials against vulnerable parties. The prohibitions arose amid 13th-century concerns over feudal power imbalances, where wealthy intermeddlers could disputes to extract concessions or profits, undermining access to for the less powerful. Early statutory measures, beginning in the 1270s, targeted these abuses; for instance, ordinances against and embracery ( linked to funded suits) reflected royal efforts to curb corruption in royal courts. from the period, such as references in legal treatises like Britton (circa 1290), reinforced that agreements for champertous support rendered contracts void and exposed participants to liability, prioritizing judicial purity over speculative funding. These medieval restrictions entrenched a presumption against third-party legal financing across jurisdictions, viewing it as inherently prone to rather than a means to equalize parties. Influenced by earlier Roman and principles against officious intermeddling, the English doctrines exported via shaped prohibitions in places like the American colonies, where courts upheld them to deter "trafficking in litigation." By treating funded suits as potentially champertous, effectively barred non-party investment until later reforms, establishing a foundational tension between preventing vexation and enabling meritorious claims.

Emergence and Expansion Post-20th Century

Modern third-party litigation funding emerged in during the 1990s, driven by legislative reforms that relaxed historical prohibitions on . In 1992, introduced federal class actions, which facilitated collective claims requiring substantial upfront capital. By 1993, enacted the Maintenance, Champerty and Barratry Abolition Act, eliminating these doctrines as criminal offenses and torts in that state, while mid-1990s reforms in other states similarly reduced barriers, particularly for insolvency practitioners funding litigation as assets of bankrupt entities. These changes created a legal environment where commercial funders could support high-value disputes, initially in class actions and insolvency cases, marking the birth of the contemporary industry. The practice expanded to the in the early 2000s, building on the 1967 Criminal Law Act that had decriminalized maintenance and champerty, though public policy restrictions lingered until subsequent judicial endorsements. English courts began upholding funding agreements as consistent with access to justice, with the 2005 Arkin v Borchard Lines Ltd decision establishing the "Arkin cap," limiting a funder's adverse costs liability to the amount funded, which mitigated investor risk and spurred market participation. The 2012 Legal Services Act further liberalized structures by permitting alternative business models, enabling closer integration between funders and law firms. In the United States, commercial litigation funding gained foothold in the mid-2000s amid varying state interpretations of champerty doctrines, with launching its Litigation Risk Strategies group in 2006 as the first dedicated commercial entity. This period saw rapid proliferation, as courts in jurisdictions like New York and declined to void funding agreements outright, distinguishing them from prohibited . Globally, the model disseminated to , , and by the , with institutional investors entering via firms like IMF Bentham (founded 2001 in ) and (2009), channeling billions into portfolios and fueling industry growth from niche funding to a multi-billion-dollar asset class.

Recent Milestones and Market Growth

The global third-party litigation funding market reached approximately USD 15.2 billion in 2024, driven by adoption among major U.S. law firms to cover escalating litigation costs in complex commercial and mass tort cases. This expansion reflects a (CAGR) of 8-10% from prior years, with projections estimating the market will surpass USD 18 billion by late 2025 and potentially reach USD 37-53 billion by the early 2030s amid increasing institutional investment and legal acceptance. Despite tighter capital conditions and higher interest rates in 2023-2024, average deal sizes rose to USD 8 million in 2024 from USD 7.8 million the prior year, indicating sustained demand for larger portfolio and single-case financings. Key milestones include the maturation of litigation finance as a recognized alternative asset class, attracting pension funds and insurers seeking uncorrelated returns, with exemplifying this trajectory by expanding its portfolio from USD 130 million in 2009 to USD 7.4 billion by 2024. In 2023-2024, regulatory advancements bolstered growth, such as Hong Kong's enactment of legislation permitting third-party funding for and certain proceedings, alongside Europe's surge in funded class actions tied to ESG claims and consumer disputes. The U.S. market, while facing disclosure mandates in federal courts, saw specialization in high-value sectors like antitrust and IP litigation, contributing to industry consolidation among established funders. By mid-2025, trends pointed to adaptation amid economic pressures, including a shift toward non-recourse for judgment preservation as traditional waned, and expanded use in emerging areas like AI-related disputes and tariff-induced insolvencies. The number of active commercial funders remained stable over the past five years, underscoring a mature resilient to market fluctuations.

Types and Models

Commercial Third-Party Litigation Funding

Commercial third-party litigation refers to non-recourse financing provided by institutional investors to corporations or law firms pursuing high-value business disputes, such as breaches, infringements, or securities litigation, in exchange for a of any favorable recovery. Unlike funding focused on or small claims, commercial funding targets complex, multimillion-dollar cases with longer durations and greater economic stakes, often involving sophisticated on case merits, damages potential, and jurisdictional risks. Funding agreements typically outline staged capital deployment for legal fees, expert witnesses, and discovery costs, with funders retaining to monitor progress and veto settlements below predefined thresholds. Returns are contingent on success, commonly structured as multiples of the invested capital—ranging from 2x to 5x or higher—capped by agreement terms to align incentives while mitigating overreach. These arrangements are prevalent in jurisdictions like the , , and , where ethical rules permit them subject to disclosure mandates in some courts. The global commercial litigation funding market reached approximately $20 billion in deployed capital as of 2025, driven by institutional interest from hedge funds and specialized providers, with projections estimating growth to $50-60 billion by the early 2030s at a compound annual rate exceeding 9%. Major players include , which manages billions in assets and focuses on appellate and matters; Parabellum Capital; and , alongside others like Omni Bridgeway and GLS Capital. This expansion reflects increasing acceptance as an alternative asset class, though it varies by regulatory environment, with U.S. federal courts requiring funder disclosure since 2018 amendments to Federal Rule of 7.1.

Consumer and Single-Case Funding

![Example of Third-Party Litigation Financing for Plaintiffs](./assets/Figure_1_Example_of_Third-Party_Litigation_Financing_for_Plaintiffs_(52651377155) Consumer and single-case funding constitutes a subset of third-party litigation financing wherein non-recourse advances are extended to individual plaintiffs pursuing isolated legal claims, predominantly in domains such as , , or employment disputes. These arrangements enable claimants facing financial hardship—often due to inability to work post-injury—to obtain immediate cash infusions for living expenses, medical costs, or ancillary legal fees without assuming repayment liability in the event of an unsuccessful outcome. Funders evaluate case viability through attorney-provided details on , , and settlement prospects, typically approving smaller sums ranging from $500 to $100,000 per instance. In operational terms, funding agreements stipulate repayment as a predetermined multiple of the advanced principal—commonly 1.5 to 3 times the amount—deducted exclusively from any eventual settlement or judgment proceeds, with no recourse to the plaintiff's personal assets if the case fails. This model contrasts with commercial funding by eschewing portfolio diversification, concentrating instead on discrete, high-volume cases amenable to rapid assessment and funding cycles often completed within 24-48 hours of application. Providers such as Oasis Financial, High Rise Financial, Tribeca Lawsuit Loans, Nova Legal Funding, Bridgeway Legal Funding, Express Legal Funding, Pegasus Legal Capital, and USClaims specialize in this niche, marketing directly to injured individuals via attorney referrals or online platforms, often praised for fast funding, quick approvals, transparent terms, and high customer satisfaction, with ratings such as 4.8/5 for Tribeca Lawsuit Loans on Google (from 944 reviews) and 5/5 for Bridgeway Legal Funding on Trustpilot (from 833 reviews); ratings vary by platform (e.g., Trustpilot, Google, BBB A+ for some) and should be verified from current independent sources like Trustpilot or BBB. Regulatory oversight remains patchwork across jurisdictions; while unregulated in many U.S. states, others impose licensing mandates, disclosure requirements to courts, or caps on funding quanta, such as ' $500,000 limit per consumer claim enacted in recent legislation. The U.S. Government Accountability Office documented in that consumer funding comprised a significant portion of the burgeoning third-party litigation market, though precise delineation from commercial segments proves challenging absent uniform reporting. Proponents assert it mitigates economic duress prompting premature settlements, yet empirical scrutiny reveals effective annualized returns exceeding 60% in some analyses, underscoring the premium exacted for risk transfer.

Portfolio and Law Firm Funding

Portfolio funding in third-party litigation finance involves a funder providing capital to support a diversified set of multiple legal cases, typically three or more, rather than a single dispute, thereby spreading across the portfolio to achieve more predictable returns from aggregate recoveries. This model contrasts with single-case , where outcomes are binary—success yielding a recovery or failure resulting in total loss—often commanding higher return multiples due to elevated concentration. In portfolio arrangements, funders advance non-recourse capital, meaning no repayment obligation exists absent successful resolutions, with returns derived from a of net proceeds from winning cases offsetting losses from unsuccessful ones. Law firm funding constitutes a primary application of the portfolio model, wherein third-party financiers supply operational capital to to cover expenses such as attorney fees, witnesses, and case development across a basket of matters, secured by future contingency recoveries rather than firm assets. Funds are often disbursed at regular intervals, such as monthly or quarterly, enabling firms to scale caseloads without depleting or relying on client retainers. For instance, providers like and Omni Bridgeway structure these deals to finance firm-wide portfolios, evaluating aggregate based on case merits, , and historical firm performance. Such funding has grown significantly, comprising approximately two-thirds of new commitments by dedicated litigation funders in 2023, reflecting its appeal for risk diversification in volatile legal outcomes. Risk assessment in portfolio and law firm funding emphasizes statistical modeling of portfolio-wide success probabilities, often targeting internal rates of return of 20-30% net of costs, lower than single-case multiples due to reduced volatility. Agreements typically include covenants on case selection, ethical compliance, and transparency, with funders retaining no control over litigation strategy to preserve client independence. This structure facilitates law firms' expansion into high-volume practice areas like commercial disputes or mass torts, but requires robust due diligence to mitigate correlated risks, such as jurisdictional shifts or adverse legal precedents affecting multiple cases. Empirical data from funders indicate portfolio deals yield more stable cash flows, with successful implementations demonstrating recovery rates exceeding 60% across diversified assets.

Operational Mechanics

Qualification and Risk Assessment

Third-party litigation funders qualify cases through a rigorous initial screening process that evaluates the legal merits, potential , , and quality . Cases typically must demonstrate a strong factual and legal foundation, with funders prioritizing complex commercial disputes such as antitrust, , or securities litigation where recovery exceeds investment multiples of 2-5 times to justify risks. Only a small fraction of submissions—around 4-5%—advance to , as providers seek high-probability outcomes supported by like expert valuations or comparable precedents. Risk assessment forms the core of due diligence, spanning 4-6 weeks for standard commercial cases and up to 90 days for specialized ones like patents, involving in-depth analysis of case strengths, weaknesses, and contingencies. Funders scrutinize procedural hurdles, such as or venue challenges, alongside defendant solvency and ability to pay judgments. Key risks include evidentiary credibility gaps (e.g., contested facts without corroboration), reliance on untested legal theories, or over-dependence on or early settlements, all modeled against conservative budget projections through trial. Financial risks are quantified via non-recourse structures, where total investment loss occurs upon defeat, prompting funders to demand realistic and experienced to mitigate execution variances. Jurisdictional stability weighs heavily, favoring common-law courts or established arbitration venues with predictable enforcement, while counsel evaluation emphasizes track records in similar matters to reduce strategic missteps. Best practices include rapid document disclosure and iterative discussions to refine assessments, often culminating in term sheets for viable cases, ensuring alignment on non-recourse returns tied to settlement or proceeds. This selective approach yields reported portfolio returns above 90% for leading providers, though individual case failures underscore the inherent volatility.

Funding Agreements and Returns

Funding agreements in third-party litigation financing constitute legally binding contracts between the funder and the funded party, typically the or their , outlining the terms of capital provision for litigation costs such as attorney fees, expert witnesses, and disbursements. These agreements specify critical elements including the amount of funding disbursed, the schedule of payments, the scope of covered expenses, and the funder's potential influence over strategic decisions like settlement approvals. Key provisions often address , with funders' identities sometimes shielded from disclosure to defendants, and delineate responsibilities to mitigate conflicts, such as requirements for the funded party to pursue the case diligently. A hallmark of these agreements is their non-recourse structure, wherein repayment of and any returns is contingent solely on a successful outcome—such as a favorable or settlement—and the funded bears no personal liability for repayment in the event of defeat. This risk transfer incentivizes funders to conduct rigorous prior to commitment, evaluating case merits, , and recovery potential to ensure alignment with investment criteria. Agreements may incorporate provisions prioritizing the funder's recovery of invested capital plus a premium before distributions to the or , thereby structuring payouts hierarchically upon resolution. Investor returns under these agreements are predominantly success-based, with funders receiving either a fixed multiple of their outlay—commonly ranging from three to five times the invested amount—or a share of the net proceeds, calibrated to compensate for the high-risk, binary nature of litigation outcomes. For instance, a three-fold return over a five-year horizon equates to an (IRR) of approximately 31.9%, reflecting the and portfolio-level risk diversification across multiple cases. Returns escalate with case duration or complexity but are capped in some structures to preserve incentives, and overall fund performance relies on winners offsetting losers, with typical portfolios experiencing 20-40% loss rates. These mechanics underscore the investment's alignment with contingency, where funders forgo returns in unsuccessful matters but capture upside in viable claims to achieve targeted portfolio IRRs often exceeding 20%.

Purported Benefits

Access to Justice and Risk Transfer

Third-party litigation funding purportedly enhances access to justice by enabling resource-constrained plaintiffs to pursue claims with positive expected value that they could not otherwise afford. In this model, non-recourse funding covers legal fees, expert costs, and other expenses, with funders receiving a contingent share of any settlement or judgment only if successful. This arrangement allows individuals and small entities to challenge defendants with superior financial resources, such as corporations, without facing personal bankruptcy from adverse costs or fees. Empirical evidence from , an early adopter of permissive funding regimes since the late , shows third-party funding correlates with increased litigation filings and court caseloads, indicating that more disputes reach . Funded cases also demonstrate greater influence on legal development, averaging 38.7 citations to other precedents compared to 19.0 for unfunded cases, and receiving 11.0 citations themselves versus 4.6. However, such expansions raise questions about net welfare gains amid court congestion and potential low-value suits. The core benefit of risk transfer lies in shifting the financial uncertainties of litigation— including the possibility of no recovery after substantial outlays—from litigants to specialized investors. Funders mitigate their exposure through portfolio diversification and rigorous , often investing across hundreds of cases to balance high returns from winners against losses from non-viable ones. This insulates plaintiffs from , permitting risk-averse parties to litigate based on merits rather than personal solvency, while aligning incentives for funders to select stronger claims. In practice, this transfer has supported funding volumes exceeding $3 billion annually in the United States as of recent estimates, facilitating thousands of cases that proponents argue would stagnate without external capital. By decoupling litigation costs from plaintiffs' balance sheets, the model fosters for participants, though critics contend it may incentivize marginal claims due to funders' profit motives.

Economic Efficiency for Litigants and Providers

Third-party litigation funding enhances for litigants by transferring from parties with limited resources or risk tolerance to specialized investors, enabling the pursuit of claims that might otherwise be abandoned due to cost barriers. Under non-recourse agreements, plaintiffs repay funders only from successful recoveries, insulating them from adverse outcomes and aligning incentives with case merits rather than personal solvency. This mechanism mirrors venture capital's role in high-uncertainty ventures, where funders' expertise in probabilistic assessment—drawing on data analytics, legal precedents, and industry benchmarks—improves case selection and , potentially yielding higher net recoveries after fees. Empirical analyses indicate that such funding facilitates risk diversification for litigants across multiple claims, reducing the of litigation and promoting settlement rates that reflect underlying case values more accurately than self-funded scenarios. For funding providers, efficiency arises from portfolio-based investing, where capital is deployed across numerous independent cases to mitigate idiosyncratic risks, akin to actuarial pooling in markets. Funders achieve annualized internal rates of return (IRRs) typically ranging from 30% to 40% on diversified portfolios, surpassing average equity market benchmarks and justifying the illiquidity premium of litigation assets. High success rates—estimated at 85-90% for funded commercial cases—stem from rigorous , which filters out low-merit claims and concentrates capital on those with favorable risk-reward profiles, thereby optimizing capital deployment and returns for investors. This specialization exploits funders' in evaluation, fostering a market where capital flows to high-value disputes, enhancing overall systemic efficiency by deterring frivolous suits through selective backing.

Criticisms and Drawbacks

Ethical Concerns Including Champerty

Champerty, a rooted in medieval English , prohibits third parties from funding litigation in exchange for a share of any recovery, as it historically encouraged the stirring up of baseless disputes for personal gain. This practice, an aggravated form of —where a disinterested supports another's without justification—was criminalized to preserve the integrity of courts by deterring speculative investments in legal proceedings that lacked genuine merit. In the context of modern third-party litigation funding (TPLF), champerty raises ethical alarms because funders often acquire economic stakes in outcomes, potentially commodifying and prioritizing returns over equitable resolution. Jurisdictions enforcing champerty statutes, such as certain U.S. states, view TPLF arrangements as void if they confer proprietary interests in claims, arguing that such funding undermines the adversarial system's reliance on parties' independent incentives. Beyond doctrinal prohibitions, TPLF implicates broader ethical conflicts, including threats to attorneys' independent judgment and client confidentiality. Funders typically demand detailed case assessments, which can compel disclosure of privileged information, risking breaches under rules like California's State Bar Formal Opinion 2020-204, which mandates safeguards to prevent funders from exerting undue influence on strategy or settlements. Lawyers involved may face divided loyalties, as funder preferences for aggressive tactics or prolonged litigation to maximize multiples—often 200-400% returns—could conflict with clients' interests in efficient resolutions. Empirical critiques highlight how TPLF may incentivize frivolous filings, with studies indicating increased lawsuit volumes and court backlogs in funded sectors like class actions, where high-stakes potential offsets weak merits. For instance, defense analyses document funders backing marginal claims to leverage nuisance settlements, distorting resource allocation in overburdened judiciaries. Critics further contend that TPLF erodes by transforming litigation into a speculative asset class, akin to , where profit motives supplant truth-seeking. While funders claim rigorous weeds out weak cases, the opacity of agreements—often non-recourse with success fees tied to recoveries—facilitates hidden control, prompting bar associations to urge enhanced disclosures to mitigate risks of champertous overreach. In patent litigation, for example, champerty has been invoked against "trolls" using funded suits to extract royalties from dubious assertions, illustrating how external capital amplifies abusive tactics absent traditional party skin in the game. These concerns persist despite regulatory evolution in permissive regimes, underscoring a tension between in legal finance and the foundational principle that disputes should arise from authentic grievances, not third-party opportunism.

Risks of Market Distortion and Increased Litigation Costs

Critics of third-party litigation funding (TPLF) contend that it distorts legal markets by subsidizing plaintiff-side costs, thereby lowering the effective financial threshold for pursuing cases that might otherwise be abandoned due to or , leading to an overall expansion in litigation volume. An empirical of Australian data from 1996 to 2007, covering cases funded by a leading TPLF firm, found that the introduction and growth of TPLF correlated with increased filing rates and caseloads, with funded cases comprising a disproportionate share of new commercial litigation. This effect stems from funders selectively backing higher-merit claims—funded cases settled at rates 20-30% above non-funded peers—but the influx still burdens judicial resources and elevates systemic dispute volumes beyond what unaided market signals would dictate. Such distortions disproportionately impact defendants, particularly in sectors like and , where aggregated claims can amplify operational uncertainties and compliance burdens. In jurisdictions like and the , where TPLF has matured, observable surges in class actions illustrate this dynamic: Australian shareholder class actions rose from near zero pre-1995 to over 100 annually by the 2010s, coinciding with TPLF's normalization post-legal reforms permitting commercial funding. U.S. observers, drawing parallels, warn of similar escalations in mass torts, such as suits, where funders' portfolio strategies prioritize scalable, high-volume claims, potentially flooding dockets with marginally viable actions that strain public courts without corresponding efficiency gains. While proponents counter that funded cases exhibit higher success rates (e.g., 40-50% win or settle favorably versus 20-30% for self-funded), the net addition to caseloads—estimated at 10-15% in sampled Australian districts—imposes externalities like delayed justice for unrelated parties and elevated administrative overheads. TPLF also drives up litigation costs through structural incentives for protracted disputes, as funders demand returns often exceeding 300-500% on invested capital to offset non-recoveries (typically 50% of funded cases). This yields resistance to early settlements, with funded plaintiffs less motivated to compromise when upfront cash flows insulate them from ongoing expenses, prolonging trials and inflating defense expenditures—U.S. insurers report 20-50% hikes in resolution timelines for TPLF-involved claims. Resulting cost pass-throughs manifest in higher premiums and input prices; for instance, post-TPLF growth in Australian commercial litigation, average defense costs per case escalated by 15-25%, contributing to broader economic frictions without evidence of proportional value creation. These dynamics, unmitigated by fee caps in many regimes, exacerbate the "" in adversarial proceedings, where funder-driven escalation undermines cost predictability.

Regulatory Landscape

Core Regulatory Debates and Principles

Third-party litigation funding (TPLF) is regulated through principles aimed at balancing expanded access to justice with safeguards against abuse, such as frivolous claims or undue third-party influence. Core principles, as articulated by the European Law Institute (ELI), emphasize transparency via mandatory disclosure of funding agreements to courts and parties, including funder identity, funding sources, and potential conflicts of interest, typically within 14 days of commencement. These disclosures enable judicial oversight to prevent conflicts and ensure fairness, while funders must maintain capital adequacy to cover liabilities like adverse costs. Additionally, principles limit funder control over litigation strategy and settlement decisions, preserving autonomy for the funded party, though funders may provide input on risks. Ethical conduct requires managing conflicts, such as those with opposing counsel, and clear marketing of funding terms. A central debate concerns whether TPLF genuinely enhances access to or incentivizes abusive litigation. Proponents argue it enables meritorious claims by under-resourced plaintiffs, such as individuals or small businesses against corporations, transferring and uncorrelated returns to investors (e.g., average funder returns of 93% in some cases). Critics, including industry groups like AdvaMed, contend it fuels meritless suits by aligning incentives with volume over quality, potentially distorting markets through higher insurance premiums and prolonged disputes, as funders prioritize high returns over efficient resolutions. Empirical data gaps persist, but U.S. Government Accountability Office (GAO) analysis notes risks of funder influence deterring settlements and exploiting consumers via high fees (often 15-18% or more). Legacy doctrines of champerty—prohibiting profit-motivated third-party funding—and have largely been relaxed or abolished in modern jurisdictions (e.g., in 2020), shifting focus to regulatory oversight rather than outright bans, though remnants inform concerns over speculative funding eroding judicial integrity. Disclosure requirements epitomize regulatory tensions, with mandates in frameworks like the EU Representative Actions Directive (Article 4(3)) requiring revelation of financial terms to assess fairness, yet opponents argue such transparency is misguided as it rarely reveals undue control and may deter , reducing access without of widespread abuse. In the U.S., absent federal rules, state-level caps (e.g., at 17% interest, at 10%) and proposals like the 2021 Litigation Funding Transparency Act highlight debates over self-regulation versus intervention, with some advocating derivatives-style oversight under the to address systemic risks in a $15.2 billion market. Light-touch approaches prevail, prioritizing claimant control and abuse prevention over heavy fee caps (e.g., Germany's 10% limit), to foster efficiency without stifling innovation.

Disclosure and Transparency Requirements

Disclosure requirements for third-party litigation funding typically mandate that funded parties inform the and opposing parties of the funding arrangement's existence, the funder's identity, and, in some cases, key terms such as the funder's potential liability for adverse costs or influence over settlement decisions. These obligations aim to enable judicial oversight of potential conflicts of interest, undue control by non-parties over , and applications for for costs against funders. Failure to disclose can result in sanctions, including dismissal of claims or costs orders, as courts view non-disclosure as undermining procedural fairness. In the United States, disclosure rules remain fragmented without a federal mandate; however, a growing number of states require mandatory revelation of funding agreements, and approximately 25% of U.S. District Courts enforce local rules or standing orders for such disclosures in civil actions. For instance, in patent litigation, most plaintiffs face no obligation to funders, though experts and funders themselves often support such requirements to address concerns over hidden incentives for aggressive claims. Legislative efforts, including a February 2025 bill introduced by Rep. , seek to impose nationwide disclosure of parties receiving payments in civil suits to curb undisclosed influences. The Judicial Conference's Advisory Committee continues to evaluate uniform rules, with a subcommittee formed in 2024 highlighting persistent gaps that could allow funders to exert back-channel control without accountability. In , disclosure is more standardized, particularly in class actions under the Federal Court's Practice Note GPN-CA, which requires funded parties to provide funding agreements to the (often redacted for commercial sensitivity) and disclose funders' identities to group members if they are clients of the applicant's lawyers. Since 2020, litigation funders must hold an , subjecting them to oversight that indirectly bolsters transparency through financial reporting, though single-party and non-class disclosures remain court-discretionary rather than automatic. Courts frequently order detailed disclosures to evaluate funders' for cost orders, reflecting 's early adoption of permissive models with built-in safeguards against abuse. The employs a discretionary approach under , where courts hold inherent powers to compel disclosure of a funder's identity, , and commitment to adverse costs, but no blanket mandatory rule applies to commercial litigation. Recent reviews, including the June 2025 Civil Justice Council report, recommend statutory regulation including upfront disclosure to enhance transparency and mitigate risks of funder-driven litigation, amid criticisms that opacity enables unchecked economic interests to shape proceedings. In international arbitration contexts overlapping with litigation funding, institutions like the ICC require parties to disclose third-party funders with direct economic interests to screen for arbitrator conflicts, underscoring a broader push for transparency to preserve . Debates persist over the scope of disclosures, with proponents arguing limited revelation (e.g., funder identity only) suffices to balance and oversight, while critics, including advocates, contend fuller terms must be revealed to detect champertous arrangements or inflated claims funded by profit-motivated investors. Funded parties often assert work-product privilege over agreements, but U.S. and common-law courts routinely reject this, prioritizing systemic over . Non-compliance risks include heightened scrutiny of settlements, as undisclosed funding can signal non-arm's-length negotiations influenced by funders' return expectations.

Jurisdictional Variations

Australia and Early Permissive Models

Australia established one of the world's earliest permissive frameworks for third-party litigation funding in the mid-1990s, diverging from traditional common law prohibitions on champerty and maintenance. In 1995, federal legislation enabled insolvency practitioners to enter commercial funding agreements for litigation recovery, providing a foundational mechanism for non-recourse financing in asset recovery cases. This reform addressed barriers to pursuing meritorious claims in insolvency contexts, where debtors lacked resources, without imposing blanket bans on third-party involvement. The permissiveness expanded through judicial endorsement, culminating in the 2005 New South Wales Court of Appeal decision in Fostif Pty Ltd v Campbells Cash and Carry Pty Ltd. The court ruled that agreements are enforceable and do not violate doctrines of champerty or if conducted in , without oppression, and aimed at legitimate claim pursuit rather than . This landmark judgment legitimized broader commercial litigation , rejecting outdated rules as impediments to access where funders had no ulterior motive to stir frivolous suits. It emphasized judicial scrutiny over prohibition, requiring courts to assess funding terms for fairness in specific cases, particularly class actions under Part IVA of the Act 1976. Early Australian models prioritized minimal statutory intervention, relying instead on case-by-case oversight to mitigate risks like conflicts of interest or excessive control by funders. By , specialist firms such as IMF (Australia) had funded 113 cases with total claim values over AUD 1.5 billion by 2010, focusing on high-merit commercial and disputes. This approach fostered market growth, enabling risk transfer to investors while courts mandated disclosure of funding arrangements to ensure transparency and prevent on proceedings. Unlike stricter jurisdictions, 's framework treated as a contractual tool enhancing efficiency, provided it aligned with against speculative or abusive litigation.

United States State-Level Approaches

In the , third-party litigation funding (TPLF) is primarily governed at the state level, with no comprehensive federal framework imposing uniform rules, leading to a patchwork of approaches that generally permit the practice while emphasizing ethical constraints and, increasingly, disclosure obligations. Most states have either abolished or declined to enforce the common-law doctrines of champerty—third-party funding in exchange for a share of proceeds—and —funding litigation without a legitimate interest—allowing TPLF in commercial disputes, though restrictions persist in cases in jurisdictions like . Courts in states such as , , and routinely uphold TPLF agreements, viewing them as permissible non-recourse financing that aligns with favoring access to , provided they comply with attorney ethics rules prohibiting non-lawyer interference in legal decisions. A minority of states maintain stricter limitations rooted in champerty precedents. For instance, New York courts have invalidated TPLF contracts deemed to grant funders excessive control over litigation strategy, as seen in cases like Wilderman v. Dispoz-O-Products, Inc. (1958), though subsequent rulings have permitted funding without such control. Similarly, and have struck down agreements violating champerty statutes, with 's Supreme Court in WFIC, LLC v. LaBarre (2016) emphasizing that funding must not undermine the attorney's independent judgment. These restrictions aim to prevent speculative financing that could incentivize frivolous suits, though enforcement is inconsistent and often limited to egregious cases. Recent legislative trends reflect growing scrutiny, with states enacting targeted reforms to mandate disclosure of funding arrangements for transparency and to mitigate risks of undisclosed third-party influence. As of July 2025, seven states—, , , , , , and —have implemented specific TPLF regulations, typically requiring parties to reveal funders' identities, funding terms, and potential conflicts upon request or at filing. pioneered comprehensive disclosure in 2023 via Senate Bill 395, mandating revelation of all funders with over 10% interest in outcomes, a model echoed in 2025 laws in , , Georgia, , and that compel similar disclosures in civil actions exceeding certain thresholds, such as $100,000 in Georgia. stands out by requiring upfront disclosure of funding agreements in commercial cases under Wis. Stat. § 802.065, enabling early judicial oversight. These measures address concerns over hidden funding distorting settlements or trials, without outright bans, as evidenced by the absence of prohibitions in the regulated states.
StateKey Regulation DatePrimary Requirement
Montana2023 (SB 395)Disclosure of funders with >10% interest; terms upon motion.
WisconsinPre-2025 (Wis. Stat. § 802.065)Upfront disclosure in commercial litigation.
Arizona2025Transparency in civil actions; funder identity and terms.
Colorado2025Disclosure mandates for funded claims.
Georgia2025Revelation for claims >$100,000; conflicts of interest.
Kansas2025Funder details and agreements upon discovery request.
Oklahoma2025Mandatory disclosure in tort and contract suits.
In unregulated states like Delaware and Illinois, TPLF operates under default judicial discretion, with courts occasionally ordering disclosures via Federal Rule of Civil Procedure 26 analogs in state rules to assess bias or standing issues. This decentralized system fosters innovation in funding markets but invites criticism for opacity, prompting ongoing debates in bodies like the American Bar Association, which in 2024 urged model rules for ethical funding without federal overreach. Overall, state approaches prioritize case-by-case evaluation over blanket prohibitions, reflecting a balance between enabling meritorious claims and curbing abuse.

United Kingdom and European Developments

In , third-party litigation funding has been permissible under since the abolition of the strict doctrines of maintenance and champerty in the 1960s, with significant growth following the Jackson Reforms of 2013 that curtailed and promoted alternative funding mechanisms. However, the Supreme Court's 2023 ruling in Inc v Competition Appeal Tribunal determined that many standard litigation funding agreements (LFAs), which entitle funders to a share of or a multiple of their , constitute damages-based agreements (DBAs) under the Courts and Legal Services Act 1990 and Damages-Based Agreements Regulations 2013; such agreements are unenforceable unless they comply with strict statutory requirements, including prescribed wording and limitations on funders' control over proceedings. This decision invalidated numerous existing LFAs and prompted industry calls for reform, as non-compliant agreements risk being void for champerty if they confer excessive control to funders. Responding to these challenges, the Civil Justice Council (CJC) issued its final report on litigation funding in June 2025, recommending a comprehensive statutory framework to regulate third-party funders, including their removal from the DBA regime, establishment of an independent regulator modeled on the Financial Conduct Authority, mandatory adherence to a "consumer duty" protecting claimants' interests, enhanced disclosure of funding terms to courts, and oversight of funders' solvency and conflicts of interest. The report's 58 recommendations aim to balance access to justice with preventing abuse, such as frivolous claims driven by funder incentives, while preserving the voluntary Association of Litigation Funders' code of conduct as a baseline; implementation would require primary legislation, with the UK government yet to respond as of October 2025. In parallel, the Court of Appeal in July 2025 upheld aspects of the PACCAR ruling but clarified that certain revised LFAs could be enforceable if reframed as conditional fee agreements or indemnity-based, though it emphasized judicial scrutiny to avoid champertous control. Across the European Union, third-party litigation funding lacks a harmonized regulatory framework, with practices varying widely by member state: permissive in jurisdictions like the Netherlands and Ireland, where funders support collective redress actions, but more restricted in France and Italy due to lingering civil law prohibitions on champerty equivalents. The European Commission's March 2025 mapping study, conducted with the British Institute of International and Comparative Law, surveyed TPLF legislation and practices in all EU states plus the UK, Switzerland, the US, and Canada, revealing a patchwork where funding enables access to justice for mass claims (e.g., under the 2020 Representative Actions Directive) but raises concerns over speculative litigation and asymmetric information favoring funders. The study highlighted debates on EU-level intervention, with stakeholders divided: business groups advocating caps on returns and transparency to curb "litigation tourism," while funders and access-to-justice advocates warn against over-regulation stifling meritorious claims. Emerging EU developments include the European Law Institute's 2020 opinions, updated in ongoing consultations, endorsing TPLF for improving enforcement of rights under directives like the Unfair Commercial Practices Directive, but recommending minimum standards such as mandatory disclosure of funders' identities and economic interests in cross-border cases to mitigate conflicts. As of 2025, no directive has been proposed, though the Commission's study informs potential future rules amid rising collective actions funded by international capital, with critics noting that without safeguards, TPLF could distort markets by incentivizing low-merit claims in lenient jurisdictions. In non-EU , maintains a cautious approach with judicial approval required for funding agreements, while the UK's post-Brexit reforms may influence continental models seeking competitive hubs.

Other Key Jurisdictions

In , third-party litigation is generally permitted without overarching federal legislation, operating under principles that have evolved to endorse such arrangements in commercial, , and contexts. Courts require approval for agreements in and proceedings to ensure fairness and prevent abuse, with approvals routinely granted since the early 2010s; for instance, courts have approved in over 100 by 2023, emphasizing arm's-length assessments of funders' financial viability and non-interference clauses. No statutory limits exist on funder returns, though courts scrutinize agreements for reasonableness to avoid champerty, as affirmed in cases like Dugal v. Financial Corporation (2011), where was upheld as advancing access to justice without undue control by the funder. Provincial variations exist, with Quebec's civil law tradition imposing stricter scrutiny on as a form of contingency akin to prohibited , yet has been approved in select commercial disputes. Singapore legalized third-party for in 2017 via amendments to the Civil Law Act, abolishing the doctrines of and champerty for such proceedings, followed by extensions in 2021 to cover disputes in the Singapore International Commercial Court (SICC) and qualifying domestic court actions under the Civil Law (Third-Party ) Regulations. These regulations mandate disclosure of funding agreements, funder identities, and potential conflicts to tribunals or courts, alongside requirements for funders to maintain capital adequacy and handle funded parties' liabilities for adverse costs. A 2025 ruling in DNQ v DNR further broadened applicability by affirming 's role in promoting efficient , rejecting challenges to its and emphasizing safeguards against abuse through rigorous merits assessments by funders. volumes have surged, with positioning itself as an arbitration hub; by 2023, over 50% of international arbitrations seated there involved , per industry reports, though ethical guidelines from the require lawyers to advise on risks without referring clients to specific funders. In , third-party litigation funding operates without dedicated statutory regulation but enjoys judicial endorsement as compatible with , permitting funders to cover costs in exchange for a success-based share of recoveries in commercial, , and disputes. Courts have upheld funding since the 2011 Benny Bachar Zoabi decision, which rejected champerty claims by requiring funders to lack control over litigation strategy, a principle reinforced in subsequent rulings emphasizing access to for under-resourced plaintiffs. The Class Actions Law (2006) implicitly allows funding by not prohibiting it, though securities class actions may involve state funding via the Israel Securities Authority as an alternative; private funding has grown, particularly in high-value IP cases, with funders assuming adverse costs risks under Civil Procedure Regulations that limit third-party liability to the funded party only. By 2024, market expansion reflects increasing funder entry, driven by Israel's robust judiciary and low corruption perceptions, though critics note potential for speculative suits without disclosure mandates.

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