Meaning
Arrangement where an entity not involved in a dispute provides the capital for legal costs in exchange for a share of any eventual recovery. Commercial parties use litigation funding to move the risk of legal fees off their balance sheets while pursuing high-value claims. This industry provides the liquidity necessary for complex cross-border cases that might otherwise be abandoned.
Investment Structure
The funder typically pays for lawyers, expert witnesses and court fees on a non-recourse basis. If the case is lost, the claimant owes nothing to the funder, but if it succeeds, the funder takes a negotiated percentage of the proceeds.
Control Boundary
Contracts for this financing must specify the extent to which the funder can influence the strategy or settlement of the case. Courts in many jurisdictions strictly limit the funder’s role to prevent interference with the lawyer’s duty to the client.
Disclosure Requirement
Tribunals increasingly require parties to reveal the presence of a funding agreement to identify potential conflicts of interest. This transparency allows the court to assess whether the funder has any prior relationship with the arbitrators. The practice ensures that the financial backing of a claim does not compromise the impartiality of the proceedings.
