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Lawsuits are expensive, and they can run for years before anyone sees a result. Third-party litigation funding is the practice of bringing an outside investor into that process: a party that is not involved in the dispute agrees to cover some or all of the legal costs in exchange for a share of any money recovered. The arrangement is usually non-recourse, which means that if the claim fails, the funder generally gets nothing and cannot ask the funded party to repay what was spent.
The idea is old in some markets and newer in others. Australia and England have used it for decades, while in the United States it became established in commercial cases only from around 2010, according to the U.S. Government Accountability Office (GAO). Today it sits alongside insurance, settlement planning, and balance-sheet management as one of the tools a business or an individual can use to pay for a dispute.
What third-party litigation funding is – and what it is not
The clearest definition comes from regulators. The Solicitors Regulation Authority (SRA) in England and Wales describes third-party litigation funding as an arrangement in which a funder independent of both the claimant and their law firm provides money to cover some or all of the costs of a claim. That independence is the key feature: the funder is not the client’s lawyer, and it is not a party to the case.
That distinction matters because litigation funding is often confused with other arrangements. A contingency fee, where a law firm is paid only if the client wins, is a contract between a client and their own lawyer. A litigation loan, by contrast, may require repayment regardless of outcome. Third-party funding sits separately: it is typically non-recourse, and the funder’s return depends on the result of the case.
Within that broad definition, the SRA identifies a few common models:
- Non-recourse agreements between the funder, the law firm, and the client, where the funder is paid only on success.
- Direct client–funder agreements, usually covering disbursements such as court fees or expert costs.
- Portfolio or working-capital funding, where the funder provides money to a law firm across a group of cases rather than a single claim.
The payment waterfall: how a funder actually gets paid
The mechanics are set out in the funding agreement, and the most heavily negotiated part is the “waterfall” – the order in which money from a settlement or judgment is distributed. In a typical claimant-side arrangement described by the International Comparative Legal Guides (ICLG), the funder is repaid first, including its return, and the balance goes to the funded party. If the claimant’s lawyers are also working on a contingency, their share is slotted into that waterfall as well.
Funder returns are usually expressed in one of two ways. Some agreements use a multiple of the amount funded – for example, a stated return of two or three times the capital – while others use a percentage of the proceeds. Because the funder can lose its entire investment if the case fails, the sizing of that return is meant to reflect the risk it is taking. Duration is part of that risk too: the longer a case runs, the longer the funder’s capital is tied up before it is returned.
The structure is also shaped by law. In the United Kingdom, a 2023 Supreme Court decision, R (PACCAR) v Competition Appeal Tribunal, held that some funding agreements where the funder’s fee is calculated as a share of damages may fall within the definition of a damages-based agreement (DBA), which is subject to specific regulations. That ruling created uncertainty, and many funders restructured existing deals to base fees on a multiple of the investment instead.
What the market data actually shows
One thing worth knowing up front: estimates of the size of the litigation funding market differ substantially depending on the methodology, the segments counted, and the reporting period. Published 2025 figures range from roughly USD 20 billion to about USD 25 billion, and longer-range forecasts vary by tens of billions. That spread is a useful reminder that no single number is authoritative.
| Source (publication) | Reported market size, 2025 |
|---|---|
| Future Market Insights | ~USD 20.6 billion |
| The Business Research Company (via GII Research) | ~USD 22.8 billion |
| Custom Market Insights | ~USD 25.1 billion |
The figures above are compiled from commercial market-research publishers and reflect each firm’s own scope and assumptions; they are not official statistics and should be read as estimates rather than precise measurements.
For the U.S. commercial segment specifically, the advisory firm Westfleet Advisors publishes an annual report based on data supplied by funders. Its 2025 edition found that capital commitments to new deals rose by roughly 23% compared with 2024, to about USD 2.8 billion across 346 new transactions – a rebound after two years of contraction. Westfleet identified 39 funders active in that market and observed that average deal sizes were broadly stable.
| Deal type (U.S. commercial, 2025) | Average transaction size |
|---|---|
| Single-matter deals | ~USD 4.5 million |
| Portfolio deals | ~USD 19.6 million |
| All deal types combined | ~USD 8.1 million |
Source: The Westfleet Insider, 2025 Litigation Finance Report. The report covers U.S. commercial arrangements between businesses; it excludes consumer litigation funding and most law-firm financing, so it is not a full picture of the global market.
Who actually uses third-party litigation funding
The short answer is that users fall into three broad groups – consumers, businesses, and law firms – and their reasons are quite different. As the market has matured, its role in corporate finance has drawn wider attention, including further business reporting on the industry’s trajectory.
Businesses and corporations
Commercial funding is where most of the money sits. The GAO found that commercial arrangements between funders and corporate litigants or law firms typically involve millions of dollars. Companies use it for several reasons: to move legal costs off the balance sheet, to keep capital available for operations, to share the risk of an uncertain claim, or to monetize a claim – that is, convert a pending legal asset into cash before it resolves. Westfleet’s data show that client-directed arrangements have become the majority of U.S. commercial commitments in recent years.
Law firms
Law firms use portfolio funding to support working capital across many matters at once. Because claimant-side firms often wait a long time to be paid, portfolio funding can let them take on more cases or invest in staff without relying solely on partner capital. Westfleet noted that portfolio deals accounted for roughly 64% of new U.S. commercial commitments in 2025, though funding directed at the largest law firms declined that year.
Individual consumers
Consumer funding is a separate and much smaller segment. It typically involves an individual, such as a personal-injury claimant, who needs money for living or medical expenses while a case proceeds. According to the GAO, these amounts are usually under USD 10,000. Because the sums are smaller and the parties are individuals, several U.S. states have adopted specific rules for consumer funding, including caps on fees and licensing or disclosure requirements.
Arbitration
Funding is also used in international commercial and investor-state arbitration. The UK’s Civil Justice Council (CJC) recommended in 2025 that arbitration funding should not be brought under a formal statutory regime, leaving the matter to arbitral institutions to determine through their own rules. That reflects a broader pattern: arbitration bodies have generally approached funding through disclosure of the funder’s existence rather than through detailed regulation of its terms.
The regulatory picture is fragmented, not uniform
There is no single global rulebook for litigation funding. How an arrangement is treated depends heavily on where the case is heard.
In the United States, there is no comprehensive federal statute specifically regulating third-party litigation funding. The GAO noted that some states regulate consumer funding, and that there is no nationwide requirement to disclose funding agreements to courts or opponents, though individual courts have required disclosure in particular cases. In recent years, some federal courts have adopted local rules or standing orders requiring disclosure, and Congress has considered several transparency bills. One example is the Litigation Funding Transparency Act of 2026, introduced in the Senate, which would require disclosure of funders in certain class and mass actions and would restrict a funder from controlling litigation strategy or settlement. At the state level, Florida’s 2026 legislation, the Litigation Investment Safeguards and Transparency Act, would require disclosure when foreign persons or sovereign wealth funds are involved and would prohibit funders from directing litigation decisions, among other provisions.
In England and Wales, funding was historically self-regulated. After PACCAR raised questions about the enforceability of some agreements, the CJC published a final report in June 2025 with 58 recommendations. Its central proposal was a “light-touch” statutory regime: capital adequacy requirements, a codified prohibition on funders controlling litigation, conflict-of-interest rules, anti-money-laundering requirements, and early disclosure of the fact of funding, the funder’s identity, and the ultimate source of funds – but not the commercial terms. The report also urged legislation to reverse PACCAR and rejected a fixed cap on funder returns, concluding that caps could reduce funding for riskier or more complex cases. The UK government signalled an intention in December 2025 to legislate along these lines, though the timing of any bill remains uncertain.
In the European Union, the European Parliament voted in favour of a proposed regulation in 2022, but the European Commission’s March 2025 report on the subject did not lead to adoption; the Commission declined to advance comprehensive regulation in November 2025 and instead indicated it would continue monitoring the market. Germany and China, according to an analysis by WilmerHale, have not adopted generally applicable laws regulating third-party funding.
How funders decide which cases to back
Because a funder may recover nothing, its upfront assessment is central to the business. Funders typically examine the legal merits, the expected value and recoverability of any award, the likely duration, and the solvency of the defendant. The GAO reported that funders can spend significant sums on this due diligence, using techniques borrowed from other investment fields, and that they often spread risk across a portfolio rather than relying on a single case.
Insurance is part of the picture as well. A funder or claimant may buy after-the-event (ATE) insurance to cover the risk of an adverse costs order – the situation where the losing side is ordered to pay the winner’s legal costs. In its final report, the CJC recommended that ATE insurance with strong anti-avoidance terms be in place for non-commercial parties and collective proceedings. Westfleet reported that about 21% of new U.S. commercial commitments in 2025 were partially or fully insured, a share broadly consistent with the prior year.
The access-to-justice debate, in both directions
Third-party funding has attracted both support and criticism, and a neutral account should include both. In its 2022 review, the GAO reported that funders and stakeholders saw advantages – such as helping underfunded claimants pursue cases – alongside disadvantages, including cost and the possibility that a funded party becomes less willing to accept an earlier settlement because of what it will owe the funder.
The Federal Judicial Center’s 2017 overview summarised the arguments more sharply. It noted that opponents have raised concerns about the volume and quality of cases, the length of litigation, and the relationship between lawyers and clients, while proponents point to expanded access to the courts and the ability to pursue meritorious claims that would otherwise be abandoned for lack of money. These are contested claims, not settled facts, and the balance can change with the jurisdiction, the type of case, and the specific agreement.
What most policy proposals have in common is a focus on transparency and control rather than on prohibiting funding outright. The recurring themes are disclosure of who is funding a case, limits on a funder directing litigation or settlement decisions, and protections for consumers and collective claimants. Whether those rules take the form of court rules, state statutes, or national legislation varies widely by place.
Frequently asked questions
Is third-party litigation funding legal?
It is generally permitted in many major jurisdictions today, but the rules differ. Common-law rules against maintenance and champerty once restricted it in several countries; those restrictions have since been relaxed or removed in places such as the United States and the United Kingdom. Specific aspects – such as fee structures, disclosure, and consumer protections – may be regulated differently depending on the jurisdiction and the type of case.
Do you have to repay the funder if you lose?
Under a typical non-recourse arrangement, no. The funder recovers only if the case produces a settlement or award. Some funding models, such as certain portfolio or working-capital facilities provided to law firms, are recourse arrangements, meaning the firm may be obliged to repay regardless of the outcome. The terms of the specific agreement and the applicable law govern.
Can a funder control the lawsuit or force a settlement?
Generally, no. Regulators and professional codes typically require that control over litigation and settlement remain with the client and their lawyer. The CJC recommended codifying a prohibition on funders directly or indirectly controlling funded litigation, and several U.S. proposals include similar restrictions. That said, funding agreements can give funders rights such as approval over settlements or termination in defined circumstances, so the actual balance depends on the contract and the jurisdiction.
How much does a funder take?
There is no universal figure. Returns are commonly structured either as a multiple of the amount funded or as a percentage of the recovery, and the rate reflects the risk and expected duration of the case. The CJC declined to recommend a statutory cap on returns, while some consumer-funding rules in U.S. states do limit fees. Because terms are negotiated case by case, the only reliable source is the agreement itself.
Does litigation funding have to be disclosed?
It depends on where the case is heard. There is no single answer. Some courts and arbitral institutions require disclosure of the existence of funding or the funder’s identity to help manage conflicts of interest; others do not. Some jurisdictions are moving toward broader disclosure requirements, while others have chosen to rely on case-by-case judicial oversight.
Who can use third-party litigation funding?
Broadly, consumers, businesses, and law firms can all use it, and it also appears in arbitration. Availability depends on the jurisdiction and the type of claim. Commercial funding typically involves larger amounts and more complex cases, while consumer funding is usually for smaller sums tied to an individual’s living or medical expenses during a claim.
The bottom line
Third-party litigation funding is best understood as a financing tool rather than a legal category. A funder takes on the cost and the risk of a dispute in exchange for a share of a recovery that may never arrive, and the terms of that trade are set out in a contract, constrained by the law of the place where the case is heard. The market has grown because litigation is costly and slow, and because claims can be valuable assets – but the rules governing who may fund, what must be disclosed, and how much a funder may take are still being written, and they look very different from one jurisdiction to the next. Anyone weighing a funding arrangement is best served by looking at the specific law that applies to their case, the terms of the particular agreement, and the track record of the funder involved, rather than at broad statements about the industry as a whole.
