Third-party litigation funding – often called legal finance or litigation finance – has moved from a niche arrangement used by a small number of claimants into a recognised part of how disputes are paid for. The reasons are less mysterious than they first appear. They combine a steady rise in the cost and duration of legal disputes, a widening gap between the expense of a case and the resources of the party bringing it, and an investor base that has grown more comfortable with a type of return that does not move with the stock market.
This article explains the mechanics behind that growth, the places where the rules have shifted, and the questions that remain open. It is a description of how the market works, not an argument for or against it.
What litigation funding actually is
At its core, litigation funding is an arrangement in which a party with no prior connection to a dispute provides money to a claimant, or to a law firm, to help pay the costs of pursuing a legal claim. In return, the funder receives a share of any money recovered, typically through a settlement or a judgment.
The structure is usually non-recourse. If the claim fails, the funder generally recovers nothing and cannot demand repayment from the claimant; the money advanced is typically lost. That is one reason legal finance is often described not as a loan but as a form of investment or asset purchase. Because it is generally not treated as debt, it is usually not reported to credit bureaus in the way a consumer loan would be.
Funding comes in two broad forms. Consumer funding, sometimes called pre-settlement funding, generally involves smaller advances to individual claimants. Commercial funding is aimed at businesses and law firms and is often directed at the larger costs of complex litigation – expert evidence, disclosure, counsel fees and the risk of an adverse costs order.
Because a funder is paid only when a case succeeds, it evaluates a claim before committing. Funders commonly look at the legal merits, the size of the potential recovery and whether the defendant would be able to pay. A case that is legally strong but financially uncollectable is generally a poor candidate.
The cost of a dispute is the engine underneath the growth
Civil litigation has become more expensive, and in many systems, slower. Cases that might once have resolved in months can run for years, particularly where expert evidence, cross-border disclosure and appeals are involved. The longer a case runs, the more a claimant has to fund before seeing any recovery, and the more attractive it becomes to share that burden with someone willing to carry the cost risk in exchange for a share of the upside.
That logic applies to businesses as much as to individuals. A company with a strong claim may still be reluctant to commit cash its operations need, or to carry the possibility of an adverse costs award on its balance sheet. Funding allows the cost of a dispute to be separated from the day-to-day finances of the claimant. The Hong Kong International Arbitration Centre has observed that third-party funding is used not only by claimants short of funds, but also by parties that wish to hedge cost risk or reduce capital outlay.
It is worth separating two things that are often blurred together. The existence of a funder does not change the merits of a claim, and it does not guarantee an outcome. What it changes is who carries the financial risk while the dispute is resolved.
Access to justice and the demand side
A large share of the demand comes from a simple mismatch: meritorious claims that cost more to pursue than the claimant can comfortably finance. Legal aid schemes cover only some matters and typically apply eligibility tests, while contingency fee arrangements shift part of the cost risk to the lawyer but do not cover disbursements such as court fees or expert reports.
When Singapore extended its third-party funding framework in 2021, its Ministry of Law framed the change partly as a response to this gap, noting that financial constraints may cause litigants to forgo pursuing their legal rights, and that additional funding options offer another route for meritorious claims. The Ministry of Law’s 2021 announcement extended funding to domestic arbitration, certain proceedings in the Singapore International Commercial Court and related mediation, building on a framework first introduced in 2017.
Cross-border arbitration gave the market room to grow
Some of the strongest growth has come from commercial and international arbitration rather than domestic court litigation. Cross-border disputes tend to be large, document-heavy and long-running, which makes them a natural fit for external capital. As arbitral institutions have become busier, they have also become more explicit about how funding is disclosed.
The Hong Kong International Arbitration Centre, for example, reported a total of 582 new cases in 2025, including 388 arbitrations, with the total amount in dispute across all arbitration cases reaching roughly HK$126.2 billion (about US$16.2 billion). Its published figures also record disclosures of third-party funding and of outcome-related fee structures, a sign that funders and parties are increasingly working within formal reporting expectations. The full breakdown is available in the HKIAC case statistics for 2024 and 2025.
Regulation has become clearer – but it is still a patchwork
Part of the reason funding is more common is that the legal picture, while uneven, has become less uncertain. Several jurisdictions have moved to permit funding explicitly and to set standards around it, rather than leaving it to be tested case by case. Others regulate it indirectly through professional conduct rules, court procedures or general contract law.
| Jurisdiction | How third-party funding is generally treated |
|---|---|
| England and Wales | Funding has been permitted for decades, with a voluntary Code of Conduct for Litigation Funders introduced in 2011. The Supreme Court’s 2023 PACCAR decision addressed whether certain funding agreements were enforceable as drafted. |
| Singapore | A framework introduced in 2017 for international arbitration was extended in 2021 to domestic arbitration, certain proceedings in the Singapore International Commercial Court and related mediation. |
| Hong Kong | Third-party funding for arbitration and mediation was permitted from 2017, with institutional rules and practice guidance following in 2018. |
| European Union | There is no single EU-wide framework. In 2022 a European Parliament committee called for common minimum standards and greater transparency around commercial funding. |
| United States | Funding is available in most jurisdictions, governed mainly by state law and court rules. Disclosure requirements vary and remain a subject of ongoing discussion. |
Source: public materials from the jurisdictions above, including the Law Society Gazette’s report on the European Parliament’s 2022 recommendations. The position in any specific case depends on the applicable law, the forum and the terms of the funding agreement.
The direction of travel has not been one-way. Some jurisdictions have tightened disclosure requirements, while others have widened the categories of cases in which funding is permitted. That variation is itself a feature of the market: funders and claimants increasingly need to check the rules of the specific forum before structuring an agreement.
Why investors find it attractive
On the supply side, legal finance has appealed to institutional investors looking for returns that are not closely tied to share prices or interest rates. A portfolio of funded claims can behave differently from conventional equities and bonds, which makes it a candidate for diversification. The trade-off is that the asset is illiquid, outcomes are binary, and returns depend heavily on case selection.
The sector has also drawn more attention in the financial press, where recent business coverage has examined how litigation finance sits within broader discussions of alternative assets. That attention tends to follow the market’s growth rather than drive it: as more capital enters, more people outside the legal profession take an interest in how the arrangements work.
None of this means returns are assured. Funding is a risk-priced activity. A funder that misjudges a claim can lose the entire amount advanced, and portfolios are built partly to spread that risk across many cases.
The transparency question
As funding has grown, so has discussion about how visible it should be. The central issues are usually procedural rather than moral: whether a party or a court should know that a claim is externally funded, whether a funder’s interests could create a conflict, and whether funders should be required to hold enough capital to meet their commitments.
Different actors have proposed different answers. Codes of conduct in some jurisdictions already require funders to confirm that they will not seek to control litigation and that they can meet their obligations. Regulators and legislatures elsewhere have debated disclosure rules, with proposals ranging from targeted court-ordered disclosure to broader statutory frameworks. The practical effect is that funding agreements often now include express terms on control, settlement decisions and confidentiality precisely because the surrounding rules are still developing.
Frequently asked questions
Is litigation funding the same as a loan?
Generally, no. Most funding is structured as non-recourse, meaning the funder is repaid only from a successful recovery. If the claim fails, the funder typically recovers nothing. That is different from a loan, which usually must be repaid regardless of the outcome.
Who can apply for litigation funding?
Requirements vary, but many funders expect the claimant to have already instructed a lawyer and to have a claim that the funder considers commercially viable. Funders commonly assess the legal merits, the likely recovery and the defendant’s ability to pay.
What happens if the funded case loses?
Under a non-recourse agreement, the funder typically bears the loss of the amount advanced. The claimant’s position depends on the specific terms, including how costs and any adverse costs orders are handled, so the agreement matters as much as the outcome.
How much of a recovery can a funder receive?
This depends on the agreement and the risk involved. There is no single figure that applies across the market, and funded agreements generally set out the funder’s share, any cap and the order in which proceeds are distributed.
Is litigation funding legal everywhere?
No. The rules differ by jurisdiction and sometimes by type of proceeding. Some systems permit it broadly, some permit it only for certain categories such as arbitration, and some restrict or prohibit historical arrangements such as champerty and maintenance.
Does funding give the funder control over the case?
Not usually. Codes of conduct in several jurisdictions are designed to limit a funder’s influence over litigation strategy, and funding agreements commonly address who decides on settlement. The specifics depend on the governing rules and the contract.
What to watch next
The most likely developments are not dramatic reversals but refinements. Expect continued movement on disclosure, clearer expectations about funder capital, and further jurisdictional adjustments as courts and legislatures work out how funding fits alongside existing cost rules. For claimants, the practical takeaway is that funding is now a mainstream option worth understanding before it is needed, because the terms are easier to assess calmly than under the pressure of a dispute already underway.
