Most people who bring a commercial claim in England and Wales run into the same arithmetic problem: the costs arrive first, and any recovery arrives later, if it arrives at all. Third-party litigation funding exists to bridge that gap. An outside investor agrees to pay some or all of the costs of a claim, and in return receives an agreed share of the proceeds if the claim succeeds. If it fails, the funder generally loses what it invested and has no claim against the client for the money it spent.
Litigation finance, also called third-party funding, now sits behind a wide range of disputes. It funds single contract claims between companies, large group actions, and portfolios of similar claims handled by one law firm. Understanding the mechanics matters, because they affect who can afford to bring a claim, how a case is run, and how a settlement is divided.
What third-party litigation funding actually is
At its simplest, a litigation funder is an investor who is independent of both the claimant and the claimant’s solicitors. The funder is not a party to the dispute and does not instruct the lawyers. The arrangement usually takes the form of a litigation funding agreement (LFA), which sets out how much money is committed, what it can be spent on, how the funder is to be repaid, and what information the claimant must share as the case progresses.
Most commercial funding is non-recourse. That means the funder is repaid only out of a successful outcome. If the claim produces nothing, the funder absorbs its own loss. This is the feature that distinguishes funding from a loan, and it is central to how the product is priced.
Funding is not the same as the alternatives that occupy the same space. A conditional fee agreement or a damages-based agreement is a deal between clients and their own lawyers. After-the-event (ATE) insurance covers the risk of an adverse costs order. Third-party funding is a separate arrangement, and the boundary between these categories has been the subject of significant litigation and public debate.
How big the UK market has become
England and Wales hosts one of the more developed litigation funding markets in the world. Estimates of its size vary widely, because different researchers measure different things: capital committed, capital available, or the total pool of claims that could in principle be funded.
| Measure | Figure | Source and date |
|---|---|---|
| Funded assets in England and Wales | About £198m in 2011/12, rising to about £2.2bn in 2022 | Dechert market analysis, May 2025 |
| Estimated size of the UK market | £1.5bn to £4.5bn in 2023, described as an addressable market | Deminor UK overview |
| Projected market size | £2.2bn in 2023 to £3.7bn by 2028, roughly 8.7 per cent compound annual growth | PwC UK projection cited by Deminor |
| Estimated available capital | About £2bn | Lexology market overview, January 2026 |
These figures come from different methods and dates, so they are best read as indicative rather than precise. What they agree on is direction. A market that was niche a little over a decade ago now supports multi-claimant actions, competition claims and commercial disputes that might otherwise struggle to reach court. Growth on that scale has drawn sustained interest from investors and from the financial press, including reporting on the litigation funding market.
What a funder is actually buying
Funders are selective. A claim has to clear several hurdles at once: a legal case strong enough to be worth backing, a defendant able to pay if the claim succeeds, damages large enough to justify the cost and risk of running the case, and a legal team with the capacity to see it through. Legal commentators commonly describe a working benchmark of roughly 60 to 70 per cent prospects of success before a funder will engage seriously, though there is no rule that fixes this, and the threshold varies between funders, case types and jurisdictions.
Recoverability matters as much as liability. A judgment is only worth what can be collected, so funders look at where a defendant’s assets sit and how hard enforcement is likely to be. That is one reason funding tends to gravitate towards claims against substantial, solvent organisations.
The funder’s return is usually structured in one of two ways. The first is a multiple of the amount invested, an agreed figure expressed as a multiple of the capital committed. The second is a percentage of the damages recovered. Commentators frequently report multiples in the region of two to four times the sum advanced, or percentages in the range of about 20 to 40 per cent, but these are market observations rather than fixed rates, and each deal is priced on its own facts.
Whatever the headline number, the practical effect is a waterfall. When money comes in, it is applied in an agreed order: typically outstanding costs and any ATE insurance premium first, then the funder’s return, with the balance going to the claimant. The order matters, because a recovery that looks substantial on paper can be reduced considerably once each layer is paid. This is not unique to litigation; it is how most forms of risk capital are structured. It is, however, the part of the process that claimants and their advisers are generally encouraged to examine closely before signing.
From first enquiry to signed agreement
The application process is usually staged, and each stage narrows the field.
- Initial enquiry and confidentiality. An early, non-confidential conversation to check for conflicts and see whether the funder’s mandate fits. A non-disclosure agreement follows before detailed information is shared.
- Packaging the claim. The claimant’s lawyers prepare a case summary, a costs budget, evidence on liability and quantum, and information on the defendant’s ability to pay. Many funders want an independent barrister’s opinion on the merits.
- Due diligence and investment committee. The funder tests the case, often in-house and sometimes with external counsel, and may ask for changes to strategy or to the legal team before committing.
- Term sheet and funding agreement. Commercial terms are agreed and set out in the LFA, alongside reporting obligations, settlement provisions and termination triggers.
- Drawdown and monitoring. Capital is released against the agreed budget. Most funders keep a light touch, typically quarterly updates or reports at key stages, in part because taking day-to-day control could call the enforceability of the agreement into question.
Timelines vary with complexity. A well-documented claim can move within weeks; a large group action can take months to package and assess.
The PACCAR decision and the shift in deal structures
In July 2023, the UK Supreme Court held in R (PACCAR) v Competition Appeal Tribunal that a litigation funding agreement under which the funder’s return is calculated as a percentage of the damages recovered is a damages-based agreement within the meaning of section 58AA of the Courts and Legal Services Act 1990. The practical consequence was that a number of existing agreements, particularly in competition claims where damages-based agreements are prohibited, became vulnerable to enforceability challenges.
Many funders responded by restructuring their returns as a multiple of the capital deployed rather than a share of the damages. That approach has generally been treated as falling outside the damages-based agreement regime, although it changes the economics of lower-value cases, where a multiple can be harder to absorb.
In June 2025, the Civil Justice Council published the final report of its review of litigation funding, recommending that the effect of PACCAR be reversed by legislation and that a regime of light-touch statutory regulation be introduced. The government indicated in December 2025 that it intended to legislate to clarify that litigation funding agreements are not damages-based agreements, with prospective effect, but did not set out a timetable. As of 2026, PACCAR remains in force.
Who regulates litigation funding
Third-party litigation funding is not subject to mandatory regulation in England and Wales. Some funders choose to join the Association of Litigation Funders and abide by its Code of Conduct, which sets standards on capital adequacy, on not controlling the litigation or settlement, and on when funding may be terminated. Members are expected to maintain access to at least £5m of capital and to cover aggregate funding liabilities for a minimum of 36 months. Membership is voluntary, so the Code governs only those who sign up to it.
The legal regulators police the conduct of solicitors and law firms that use or arrange funding. In 2026 the Solicitors Regulation Authority issued guidance on third-party litigation funding, covering duties around client information, risk assessment and independence, after consulting on new requirements. Broader questions about whether funders themselves should be more formally regulated remain under discussion; the Civil Justice Council recommended statutory regulation overseen by the Lord Chancellor rather than the Financial Conduct Authority at this stage.
What happens when a funded case fails
Because most funding is non-recourse, a claimant who loses generally does not have to repay the funder. The larger exposure is adverse costs. In England and Wales the losing party is typically ordered to contribute towards the winner’s legal costs, and ATE insurance exists to cover that risk. It is usually arranged alongside funding and is often a condition of it.
Since April 2013, ATE premiums have generally not been recoverable from the losing party, which means the cost of the policy falls on the funded side. Premiums are calculated on risk and can be substantial; specialist guides describe commonly encountered figures in the region of 30 to 45 per cent of the sum insured, although pricing varies widely with the type of case and the stage at which cover is taken out. Many policies defer the premium until the case concludes.
Open questions
The current debate is less about whether litigation funding should exist and more about how it should be supervised. The Civil Justice Council’s recommendations on disclosure, capital adequacy, conflicts and returns are with government, but legislation had not been scheduled as of mid-2026. Whether the market moves towards statutory regulation, and how quickly, is unresolved.
Funding has also become more central to collective actions, where the court scrutinises the fairness of a funder’s return alongside other terms. As other European jurisdictions adjust their own rules, the UK’s standing as a funding hub may be tested by competition from elsewhere. For claimants, the practical questions stay the same: what the funder takes, who controls the case, and what happens if it fails.
Frequently asked questions
Is litigation funding legal in the UK?
Yes. Third-party litigation funding is lawful in England and Wales. It is not currently subject to a mandatory statutory licensing regime, although funding agreements must satisfy general contract law and, in some contexts, court scrutiny.
Does the funder control how the case is run?
Generally no. Funders are expected to stay at arm’s length and not to direct the litigation or dictate settlement. In practice they receive progress updates and may be consulted on major decisions, and the funding agreement should record how those decisions are made.
What happens if the case loses?
Under a non-recourse arrangement the funder loses its investment and the claimant does not usually have to repay it. The claimant may still face an adverse costs order, which is where ATE insurance comes in.
How much does a funder take?
It depends on the deal. Returns are usually structured as a multiple of the amount invested or, where enforceable, a percentage of the recovery. Reported ranges vary and the figure is negotiated case by case.
Who can obtain litigation funding?
Commercial claimants are the traditional market. Funding is also used in consumer claims and group actions, although arrangements differ and attract more regulatory attention. Not every case qualifies; funders decline most of the matters they review.
Is litigation funding regulated?
There is no mandatory regulator for funders in England and Wales as of 2026. Self-regulation through the Association of Litigation Funders covers members who opt in, and legal regulators supervise the solicitors and law firms that use funding. Statutory reform has been recommended and remains under consideration.
How this article was put together
This guide is based on regulatory and primary sources checked in 2026, including the Civil Justice Council’s 2025 review of litigation funding, the Solicitors Regulation Authority’s 2026 guidance and consultation on third-party litigation funding, the Association of Litigation Funders’ Code of Conduct, and public market overviews from legal and financial analysts. Market size figures come from different research methods and dates and are presented as estimates rather than precise measurements. Where the text describes typical practice, such as funder return structures or ATE premium levels, it reflects published market observations rather than fixed rules. This area is changing, and the position on PACCAR should be rechecked against any legislation that is introduced.
