Third-party litigation funding has moved from niche product to a multi-billion-pound asset class in the UK, reshaping how individuals, businesses and law firms pursue claims. At its core, the economics are simple: a funder provides capital to cover legal costs in exchange for a share of the proceeds if the case succeeds, but the implications for access to justice and risk management are far-reaching.

What Is Third-Party Litigation Funding?

Third-party funding involves an independent funder paying some or all of a claimant's legal costs, typically on a non-recourse basis, in return for a contractually agreed return if the claim is successful. If the case is lost, the funder usually receives nothing and the claimant owes no repayment, which is why funding is often described as non-recourse capital rather than a traditional loan.

In the UK, funders commonly finance legal fees, counsel fees, expert reports and disbursements, and may also help arrange adverse costs insurance. This enables claimants to litigate without tying up their own cashflow or exposing themselves to open-ended downside risk.

A Rapidly Growing Investment Market

The UK market for litigation funding has expanded dramatically over the last decade. Assets managed by funders in England and Wales grew from about £198 million in 2011/12 to around £2.2 billion in 2022, a more than ten-fold increase. Analysts estimate that, globally, litigation finance is now a market worth in the tens of billions of US dollars, with the UK seen as one of the most developed hubs.

Several structural factors drive this growth: disputes tend to be counter-cyclical (they do not disappear in economic downturns), returns can be attractive compared with other asset classes, and the UK's reputation as a leading centre for commercial litigation draws international investors. As a result, specialist funders now compete alongside private equity firms and hedge funds that view legal claims as an alternative asset.

How Funders Price Risk and Returns

Because litigation funding is non-recourse, pricing centres on risk assessment and probability-weighted returns rather than interest rates on capital. A typical funder will examine:

- Legal merits and prospects of success

- Quantum of damages and realistic recoverability

- Budgeted legal costs and likely duration of the proceedings

- Enforcement risk, including the defendant's assets and jurisdiction

Only a relatively small proportion of proposed cases pass this screening, which is why funding is often said to filter out unmeritorious claims: funders will not usually back cases where the risk-adjusted return is weak.

Returns are usually structured as either a multiple of the deployed capital, a percentage share of the damages, or a combination capped at a certain level. Some funders, including providers using a fixed-return model, offer claimants greater certainty about what they will pay on success, which can help ensure a larger share of any compensation remains with the claimant.

Benefits for Claimants, Businesses and Law Firms

For individuals and SMEs, the most obvious benefit is access to justice: funding enables claims that would otherwise be unaffordable, particularly against well-resourced defendants. The ability to litigate without paying costs upfront can change the power balance in settlement negotiations and discourage defendants from using "war of attrition" tactics.

For larger corporates, the economics are more about capital efficiency. Funding allows them to move legal spend off balance sheet, smooth cashflow and convert contingent claims into managed financial assets. Law firms also benefit from expanded options: alongside conditional fee or damages-based agreements, external funding can support portfolios of cases or working-capital facilities that smooth revenue and enable investment in complex matters.

Key Risks and Regulatory Landscape

Litigation funding is not risk-free for any of the participants. From the investor's perspective, capital is at risk and returns are uncertain; cases can take years to resolve, and changes in law or procedure can affect outcomes. For claimants, while they do not usually repay if they lose, they must accept that a portion of any successful recovery will go to the funder, and they need to understand clearly how that return is calculated.

In the UK, third-party funding is currently governed by a combination of voluntary self-regulation and judicial oversight. The Association of Litigation Funders operates a Code of Conduct covering issues such as capital adequacy and funder behaviour, and courts routinely scrutinise funding arrangements for fairness, especially in collective actions. Recent debate has focused on the Supreme Court's PACCAR decision and the government's stated intention to legislate so that litigation funding agreements remain enforceable while also introducing a more formal regulatory framework.

Brexit and Cross-Border Funding Dynamics

Brexit has altered the legal environment for cross-border disputes, particularly around the recognition and enforcement of English judgments in EU member states. While English courts remain a leading forum for international commercial cases, funders and claimants must now pay closer attention to enforcement strategy—working with local counsel to identify reliable bases for recognition under instruments such as the Hague Convention or local private international law rules.

For funders, this adds another layer to the economic analysis: even a strong claim on the merits may be unattractive if enforcing a judgment abroad is likely to be slow, uncertain or expensive. Conversely, where enforceability is robust—such as against defendants with substantial UK-based assets—Brexit has not diminished the appeal of London as a venue for cross-border litigation.

What This Means for Access to Justice

Policymakers increasingly recognise that third-party funding plays a "vital role" in enabling claimants to access the courts, particularly in complex, high-value or collective actions that would be impossible to run on traditional fee models alone. At the same time, there is active discussion about how best to regulate funders to ensure transparency, fair returns and appropriate protection for consumers and investors.

As the market matures and new legislation comes into force, the underlying economic rationale is unlikely to change: litigation funding channels private capital into meritorious claims, bearing the downside risk in exchange for a share of upside. For claimants and law firms navigating today's dispute landscape, understanding these economics is essential to making informed decisions about whether, when and how to use funding to pursue justice without unacceptable financial exposure.