What is Litigation Funding
Litigation financing is a transaction in which a third party provides the financial resources to initiate a lawsuit.
Litigation funding …. Litigation finance ..… Legal finance ……Third-party Funding … Dispute finance … while there are many more alias or labels for this industry, the premise behind the name is one and the same. Litigation funding provides capital to claimants, law firms, or businesses collateralized solely by the future proceeds of their meritorious cases and legal claims. It provides ways to help make law firms and the legal system more accessible on a broader scale. Funding may come in many forms (legal fees and expenses, monetization or advance of entitlement, single matter or portfolio) and does not impact control, which remains with the claimant. Typically, the capital provided by funders is on non-recourse basis, not a debt. Meaning the investment and return are paid only on a successful resolution of the case.
The litigant obtains funding to cover the costs of litigation from a third party funder who has no direct interest in the case. In return, but only if the case is won, the lender receives an agreed-upon share of the proceeds of the claim. If the case is unsuccessful, the funder receives no compensation and nothing is owed by the litigant. litigation funding is suitable not only for smaller companies that need money to conduct their litigation, but also for large companies with sufficient resources, as it is a way to finance the cost of litigation. External funding of lawsuits is now a familiar phenomenon. This form of financing originated in Australia more than 30 years ago and is now well established in the United Kingdom and the United States. And growing in the other European countries and in the Middle East.
Outsourcing claims can be useful, even for large companies with their own legal departments and significant financial resources. By outsourcing its claims for a certain amount of money to a specialized outside funder, a company can stay focused on its core business and does not have to release its own funds for litigation. Litigation costs are among the operating expenses that are directly charged to earnings in the P&L. But unfortunately, when the case is won, the proceeds are not part of regular income. For accounting purposes, this income is not considered to contribute to profits. By funding a lawsuit rather than paying for it yourself, the costs can be taken off the balance sheet. The funder’s share of the proceeds of a successful case is agreed with the client in advance. This financial reward may be a percentage of the claim won, or a multiple of the amount funded or a combination of both.
Disputes we arrange finance
We provide non-recourse commercial litigation finance for any type of commercial disputes being brought by a company or individual. Our funding arrangements support includes:
- Commercial litigation
- Arbitration
- Distressed asset recovery
- Antitrust litigation
- Judgment / awards enforcement
- Appeals
- Bankruptcy and insolvency
- Commercial litigation
- Intellectual property, including copyright, trademark, trade secret and patent
- Law firm financing – individual case as well as portfolio financing
- Securities litigation
We partner with claimholders to arrange for structured funding solutions aligned with their strategic and commercial objectives, including:
- Single-case financing
We arrange capital to support an individual litigation or arbitration, which may include legal fees, working capital, debt servicing, and other approved costs, with repayment contingent solely on a successful recovery. - Portfolio financing
We arrange funding for multiple disputes or arbitrations held by a law firm or corporate claimant. Returns are derived from recoveries achieved in one or more matters within the portfolio, enabling risk diversification and enhanced cash-flow management. - Multi-party financing
We arrange funding for actions brought against a defendant on behalf of multiple claimants or representative parties with common or similar claims. Suitable matters may include securities and shareholder disputes, environmental claims, and product liability actions. This structure is particularly relevant in jurisdictions with group or class action regimes—such as Australia and certain European markets—where contingency fee arrangements are restricted or prohibited.
Key Benefits of Legal Finance
Unlocking value
For corporates and law firms, legal finance delivers immediate financial and accounting advantages, including improved liquidity, off-balance-sheet treatment of litigation spend, and the ability to redeploy capital toward core business priorities. In appropriate circumstances, it can also transform a legal department from a cost center into a value-generating asset.
Risk management
Caveat Capital arrange to provide non-recourse funding, meaning our return is payable only upon a successful outcome. If a claimant does not achieve a recovery—whether by settlement, judgment, arbitral award, or otherwise—there is no obligation to repay the funded capital. This removes the financial uncertainty associated with disputes and allows claimholders to pursue meritorious claims without committing substantial upfront or ongoing capital.
Unlike traditional interest-bearing loans, legal finance does not require repayment irrespective of outcome and is not exposed to fluctuations in interest rates. Funding terms are bespoke and calibrated to the merits, value, and enforceability of each dispute.
Levelling the playing field
Legal finance enables disputes to be resolved on their legal and commercial merits, rather than the relative financial strength of the parties. It empowers claimants to retain leading counsel and expert advisers, pursue claims through to optimal outcomes, and resist opportunistic or undervalued settlement offers in strong cases.
Get in Touch
If you would like to learn more about Litigation Funding and what we can do for you, please contact us.