You’re facing a commercial dispute. The claim is strong. The other side has deeper pockets. Your legal costs could easily hit $500,000 or more over the next 18 months.
And you’re thinking: there has to be a smarter way to fund this.
That’s where litigation funding enters the conversation. Not as a desperate measure when you’re out of cash, but as a strategic tool that shifts risk, preserves capital, and changes the power dynamic in disputes.
This article explains how litigation funding works in Australia, when it makes sense, what it costs, and what you need to know before you sign anything.
Key Takeaways
- Litigation funding is commercial finance for disputes, a third party (the funder) pays your legal costs in exchange for a share of any recovery, with no repayment if you lose.
- The funder carries the cashflow and adverse costs risk, you preserve working capital and avoid the exposure of paying the other side’s costs if the case fails.
- Funders typically take 20-40% of your recovery (sometimes more), depending on risk, case size, and timing of their involvement.
- You don’t lose control of your case automatically, decision-making rights are negotiated in the funding agreement, and your lawyers remain independent.
- Funding works best for substantial, meritorious claims against solvent defendants, not every dispute is “fundable”, and size, enforceability, and merit all matter.
- You should get independent legal advice on any funding agreement, funders negotiate these deals constantly; you might do it once in your career.
What Is Litigation Funding in Australia?
Litigation funding (also called third party litigation funding or litigation finance) is where an independent funder agrees to pay your legal costs and disbursements in exchange for a percentage of any settlement or judgment you win.
If you lose, the funder walks away empty-handed. You owe them nothing.
That’s the core deal. The funder takes on the financial risk of your case, and they get paid only if you succeed.
In Australia, litigation funding is well-established and legally recognised. It’s used across commercial disputes, class actions, insolvency claims, and shareholder disputes. The High Court confirmed over 15 years ago that these arrangements are legitimate, provided they don’t amount to an abuse of process.
The players in a funded case are straightforward: you (the claimant), your litigation lawyers (who remain independent and owe duties to you), and the funder (who provides the capital and takes a share of the risk and reward).
Litigation funding is not the same as “no win, no fee” arrangements with lawyers. In a conditional fee arrangement, your lawyer agrees to defer or discount their fees. They still get paid something (often an uplift if you win), but they’re not covering the other side’s costs or putting up capital for disbursements. A litigation funder does both.
Litigation funding shifts the entire financial risk of the dispute to a third party. Your lawyers still act for you. The funder backs the case financially but doesn’t replace your legal team.
Why Businesses and Individuals Consider Litigation Funding
Let’s be direct: litigation is expensive, slow, and uncertain. Even when your case is strong, the cashflow burden and risk of adverse costs can derail your willingness to pursue it.
Litigation funding solves several problems at once.
First, it preserves your working capital. If you’re running a business, tying up $500,000 or more in legal fees over two years has an opportunity cost. That money could go into inventory, hiring, growth, or simply staying in reserve. Funding allows you to pursue the dispute without raiding the balance sheet.
Second, it removes adverse costs risk. In Australian litigation, the losing party typically pays the winning party’s legal costs. If you self-fund and lose, you’re exposed not just to your own legal bill but to the other side’s as well. A litigation funder (if the agreement covers it) assumes that risk. You’re protected.
Third, it levels the playing field. If your opponent has deeper pockets and a strategy of outspending you into submission, a well-capitalised litigation funder changes the calculation. The other side now knows you can go the distance.
Fourth, it’s a governance and risk management tool. For boards and shareholders, litigation funding allows you to pursue a legitimate claim without exposing the company to unquantifiable financial risk. You cap your downside. The dispute is off the balance sheet.
Not every business needs these benefits. If you’re cashed up, risk-tolerant, and confident in your ability to bear the costs of losing, funding may not add value. But if cashflow is tight, the claim is substantial, or the risk profile makes your board uncomfortable, funding becomes a commercial conversation worth having.
Litigation funding isn’t just for companies that can’t afford to pay legal fees. It’s also a strategic choice for businesses that can afford it but would rather deploy capital elsewhere and transfer the downside risk.
How a Funded Case Works in Practice
The process from first conversation to resolution follows a clear path. Understanding it removes the mystery.
Initial Assessment
You approach a litigation funder (or they’re introduced by your lawyer). You provide them with a summary of the dispute, key documents, and any legal advice you already have.
The funder conducts an initial review. They’re assessing: Is the claim large enough? Are the merits strong? Is the defendant solvent and able to pay a judgment? Can we enforce any award?
If the funder sees potential, they move to due diligence.
Due Diligence and Term Sheet
This is where the funder digs in. They’ll want:
- Contracts, correspondence, and documents that support your claim
- Expert reports or technical assessments (if relevant)
- Financial information on the defendant (to assess collectability)
- Legal opinions on liability, quantum, and likely defences
- Cost estimates from your legal team for the life of the case
Due diligence can take weeks or months, depending on complexity. The funder is underwriting the risk. They want to be confident before committing capital.
If they like what they see, they issue a term sheet. This sets out the headline commercial terms: how much they’ll fund, what percentage of any recovery they take, who controls key decisions, and how adverse costs are handled.
Funding Agreement
Once you agree to the term sheet, the lawyers negotiate the formal funding agreement. This is a detailed commercial contract. It will cover:
- The funder’s obligation to pay your legal costs and disbursements
- Whether the funder provides security for the defendant’s costs (if ordered by the court)
- The funder’s return: a percentage of gross recovery, or a multiple of capital deployed, or a hybrid
- Decision-making and control rights (settlement approval, choice of counsel, strategy)
- Termination rights: when the funder can walk away, and what happens if they do
- Confidentiality and information sharing
You should have your own lawyers review this agreement independently. Funders negotiate these deals constantly. You might do it once.
Conduct of the Case
Once funding is in place, the litigation proceeds as it otherwise would. Your lawyers run the case. The funder pays the bills as they fall due.
The funder will want regular updates: progress reports, significant developments, revised cost estimates. They’re a financial stakeholder, and transparency is part of the deal.
If the defendant applies for security for costs (an order requiring you to provide security for their potential costs), the funder typically steps in. Either they provide a bank guarantee or they fund the security amount.
Resolution and Payout
If the case settles or you win at trial, the funder takes their agreed return from the proceeds. What’s left goes to you.
If you lose, the funder absorbs the loss. They don’t come after you for reimbursement (unless the agreement carves out specific scenarios like fraud or breach of your obligations under the funding agreement).
Most funding agreements require the funder’s consent to any settlement. The practical effect: you can’t accept an offer without the funder agreeing. This is where negotiation matters upfront. You want the agreement to say that the funder’s consent cannot be unreasonably withheld.
The funding agreement should clearly set out the process for settlement discussions and dispute resolution if you and the funder disagree on whether to accept an offer. Don’t leave this vague.
What It Costs: How Funders Are Paid and What You Keep
Let’s talk numbers. You need to understand how much a funder takes and what that means for your net recovery.
Common Pricing Models
Percentage of recovery: The funder takes a fixed percentage of any settlement or judgment (typically 20% to 40%, sometimes more). Simple, transparent, aligns incentives.
Multiple of deployed capital: The funder gets back a multiple of what they spent (e.g., 2x or 3x their outlay). If they spend $1 million and the multiple is 2.5x, they take $2.5 million off the top of any recovery.
Hybrid models: A combination of the above, or a percentage with a floor (minimum return) and a cap (maximum return).
The pricing reflects risk. High-merit, high-value claims against cashed-up defendants get better pricing. Riskier claims, or those where enforcement might be difficult, cost more.
Worked Example: $3 Million Settlement
Imagine you settle a dispute for $3 million. The funder has spent $800,000 on legal costs and disbursements. The funding agreement says the funder takes 30% of gross recovery.
The funder’s return: $900,000 (30% of $3m).
You receive: $2.1 million.
Your legal team has been paid along the way by the funder, so this $2.1 million is yours, net.
Now compare that to self-funding. If you spent $800,000 on legal costs and recovered $3 million, you’d net $2.2 million (ignoring any adverse costs risk you carried).
The difference: $100,000, or roughly 3% of the total recovery.
The question: Was it worth $100,000 to avoid risking $800,000 of your own capital and to eliminate the exposure to the defendant’s costs if you lost?
For many businesses, that’s an easy yes.
If the case had failed, you’d be out $800,000 plus potentially the other side’s costs (say, another $600,000). Total exposure: $1.4 million. The funder bore that risk, and you paid nothing.
Litigation funding compresses your risk and caps your downside, but it costs you a share of the upside. You need to compare the funding price to your alternative: self-funding with full exposure to adverse costs.
Control, Decision-Making and Your Relationship with the Funder
One question we hear constantly: “Do I lose control of my case if a funder is involved?”
The short answer: not automatically, but it depends on what you agree to.
Who Runs the Case?
Your litigation lawyers run the case. They owe professional duties to you, not to the funder. They give you advice, prepare the pleadings, conduct the hearings, negotiate settlement.
The funder has a financial interest in the outcome, but they don’t instruct your lawyers on legal strategy or tactics. That remains between you and your legal team.
Settlement and Major Decisions
Most funding agreements give the funder consent rights over settlement. You can’t accept an offer without the funder agreeing.
This makes commercial sense. The funder has real money at risk. They’re entitled to a say in whether an offer is acceptable.
But the agreement should balance this. Look for clauses that say:
- The funder’s consent cannot be unreasonably withheld
- If there’s a dispute about settlement, there’s a clear process (mediation, expert determination, etc.)
- You retain control over day-to-day litigation decisions
Some agreements go further and give the funder control over choice of senior counsel, approval of significant strategy shifts, or decisions about appeals. These are negotiable points. Push back if they’re too restrictive.
The key: clarity upfront. If you want to retain certain decision-making rights, negotiate them into the agreement before you sign.
Information and Confidentiality
The funder will want regular updates on the case: progress reports, counsel’s advice, settlement discussions, revised cost estimates.
You’re sharing commercially sensitive information with a third party. The funding agreement should include robust confidentiality provisions. The funder shouldn’t be able to use that information for any purpose other than managing the funded case.
If you’re concerned about confidentiality (e.g., because the dispute involves trade secrets or strategic business information), address it upfront. Some funders are more flexible than others.
Before signing a funding agreement, map out the major decisions you want to retain control over (e.g., choice of counsel, settlement threshold, appeal decisions) and negotiate those rights into the contract. Funders expect this conversation from sophisticated clients.
When Litigation Funding Is (and Isn’t) a Good Fit
Not every dispute is fundable. Funders are selective. They’re deploying capital and taking risk, and they need a reasonable probability of a return.
Claims That Attract Funding
Large quantum: Funders typically look for claims worth at least $1-2 million, often much more. Smaller claims don’t justify the due diligence cost and risk.
Strong merits: The funder’s investment committee needs to believe you have better than even odds of succeeding. Speculative or weak claims don’t get funded.
Solvent defendant: A judgment against an insolvent defendant is worthless. Funders assess the defendant’s ability to pay before committing capital.
Enforceable award: Can you actually collect if you win? Cross-border disputes, defendants in jurisdictions with weak enforcement, or complex asset structures all raise red flags.
Quantifiable damages: Funders prefer claims with clear, provable financial loss. Pure injunctive relief or “vindication” claims are harder to fund.
Typical funded matters include:
- Breach of contract (unpaid debts, failed projects, breached supply agreements)
- Shareholder and partnership disputes (oppression, breach of fiduciary duty)
- Insolvency claims (liquidators pursuing former directors, insolvent trading claims)
- Intellectual property disputes (patent, trade mark, copyright infringement with measurable loss)
- Class actions and group litigation (though this is a distinct sub-market)
When Funding Doesn’t Make Sense
If your claim is small (under $500,000), finding a commercial funder will be difficult. The economics don’t work for them.
If the dispute is about principle rather than money, funding is the wrong tool. Funders are financial investors. They want a return. If your goal is to “send a message” or “get an apology”, fund it yourself.
If you’re cashed up and the adverse costs risk doesn’t concern you, funding may be unnecessary. You’ll give up 25-35% of your recovery for risk transfer you don’t need.
And if the defendant is a shelf company with no assets, funding is unlikely. Funders won’t deploy capital into a case they can’t collect on.
How Funding Interacts with Other Options
Litigation funding isn’t the only way to manage costs and risk. You have other tools:
After-the-event (ATE) insurance: This covers your exposure to the defendant’s costs if you lose, but it doesn’t pay your own legal fees. You can combine ATE insurance with self-funding, or with a conditional fee arrangement with your lawyers.
Conditional fee arrangements (“no win, no fee”): Your lawyers agree to defer or discount fees, taking an uplift if you win. This reduces your upfront cashflow burden, but doesn’t eliminate it entirely (disbursements still need paying), and doesn’t cover adverse costs.
Hybrid structures: Some cases are funded by a combination of litigation funding, ATE insurance, and conditional fees. Each party takes a slice of the risk and reward.
Funders and ATE insurers often work together. The funder pays your legal costs, the ATE insurer covers adverse costs risk. This gives the funder more confidence (they’re not exposed to paying the other side), and you’re fully protected.
If your lawyers offer conditional fees, ask whether combining that with ATE insurance might be cheaper than full litigation funding. There’s no one-size-fits-all answer. It depends on the case, the pricing, and your risk tolerance.
Litigation funding is one tool in a broader suite of options for managing dispute costs and risk. The right structure depends on your cashflow, risk appetite, and the specifics of the claim. Don’t assume funding is the only option just because you’ve heard about it.
Choosing a Funder and Negotiating Terms
If you’ve decided litigation funding makes sense, how do you choose a funder and what do you negotiate?
What to Look For in a Funder
Capital and track record: Does the funder have the financial resources to see your case through to trial and any appeal? Are they members of the Association of Litigation Funders of Australia (ALFA), which has a voluntary code of conduct?
Experience in your type of dispute: Have they funded similar claims before? Do they understand the nuances of your industry, the legal issues, and the likely defendant behaviour?
Reputation and references: Can they provide references from claimants and law firms they’ve worked with? What’s their reputation in the market for being fair, transparent, and honouring commitments?
Flexibility on terms: Are they willing to negotiate the commercial terms, or is it a take-it-or-leave-it offer? Sophisticated funders expect negotiation from sophisticated clients.
Key Terms to Negotiate
Price: The funder’s return is the headline number, but look at how it’s calculated. Is it a percentage of gross recovery or net (after costs)? Is there a floor or cap? Is the pricing tiered based on when the case resolves?
Adverse costs cover: Does the funder cover your exposure to the defendant’s costs if you lose? If so, is there a cap? This is critical. If the funder doesn’t cover adverse costs, you’re still exposed to significant downside.
Security for costs: If the court orders you to provide security, does the funder put it up? Most do, but confirm.
Control and consent rights: As discussed earlier, who makes decisions about settlement, choice of counsel, appeals? Negotiate these upfront.
Termination rights: Under what circumstances can the funder walk away? If they do, what happens? Do they get any return on capital deployed to that point? Can you take over and continue the case?
Confidentiality and conflicts: How does the funder manage confidential information? What if they fund multiple parties in related disputes?
Post-settlement obligations: What happens if there’s a dispute about the funder’s entitlement after settlement? Is there an agreed dispute resolution process (mediation, expert determination, arbitration)?
Get Independent Legal Advice
This point is non-negotiable. Have your litigation lawyers review the funding agreement and advise you on the commercial terms.
Funders negotiate these agreements constantly. Their in-house lawyers are experienced. You’re doing this once, maybe twice in your career. The information asymmetry is real.
Your lawyers can benchmark the pricing against market norms, identify one-sided terms, and negotiate a better deal. They’ll also explain the interaction between the funding agreement and the litigation itself (e.g., security for costs, adverse costs orders, settlement approvals).
Don’t sign a funding agreement without independent legal advice. It’s a commercial contract that could materially affect your recovery. Treat it with the same rigour you’d apply to any significant business agreement.
Funders often present a “standard” agreement with little room for negotiation. That’s a negotiating tactic, not a fixed position. Sophisticated claimants negotiate pricing, control rights, and termination provisions. Don’t assume the first offer is the best you can get.
Understanding the Risks and Downsides
Litigation funding isn’t risk-free. Let’s talk about what can go wrong and what you need to watch for.
The Funder Walks Away
Most funding agreements allow the funder to terminate if the case weakens materially. If new information emerges, if a key witness becomes unavailable, or if counsel advises the merits have deteriorated, the funder can pull out.
If they do, you’re left with three options:
- Find another funder (difficult mid-case, and expensive).
- Self-fund from that point forward (you’ve already spent the funder’s capital, and now you’re on your own).
- Discontinue the case.
Protect yourself by negotiating reasonable termination provisions. The funder shouldn’t be able to walk away on a whim. There should be clear triggers (e.g., senior counsel advises prospects have fallen below 50%, or a key aspect of the claim fails at an interlocutory hearing).
Settlement Pressure and Conflicts
You and the funder might have different settlement thresholds. The funder may want to settle early to lock in a return. You might want to push for a better outcome.
This tension is managed through the consent and dispute resolution provisions in the funding agreement. If those provisions are weak or silent, disputes about settlement can derail the case.
Another conflict: the funder has a portfolio of cases. Yours is one of many. Their risk appetite and return hurdles may not align perfectly with your objectives.
This is why clarity upfront matters. If your goal is to maximise recovery and you’re willing to take the case to trial, say so. If the funder wants a quick settlement, you’re misaligned and the deal won’t work.
Reputational and Commercial Implications
Funded litigation is public (once proceedings are issued). The defendant will likely find out you’re funded. In some cases, that changes their strategy. They might see it as evidence you’re serious and well-resourced. Or they might try to exploit it, arguing you’re not the “real” claimant or that the funder is driving the case.
In practice, defendants rarely gain much tactical advantage from knowing you’re funded. But it’s something to consider if reputation or commercial relationships matter.
Cost and Complexity
Funding adds a layer of complexity. You’re managing a relationship with the funder as well as your legal team. The funder needs regular updates, wants to review key decisions, and may push back on strategy or costs.
This takes time and focus. If you’re running a business, it’s another stakeholder to manage. The trade-off: you’ve transferred financial risk, but you’ve also brought another party into the tent.
Regulatory Uncertainty
Australian regulation of litigation funding has evolved and will likely continue to evolve. Funders operating in class actions face more scrutiny (from courts and regulators) than those in single-claimant commercial disputes, but the landscape is not static.
If regulatory changes occur mid-case, your funding agreement may need renegotiating or the funder’s appetite may shift. It’s a low-probability risk, but worth being aware of.
Litigation funding transfers financial risk, but it introduces relationship and structural complexity. The funder becomes a stakeholder in your dispute. That relationship needs managing just like any commercial partnership.
How Aptum Can Help You Navigate Litigation Funding
At Aptum, we’ve worked on dozens of funded disputes. We’re independent of funders, which means our advice is centred on your objectives, not theirs.
If you’re considering litigation funding, we can help you:
Assess whether your claim is realistically fundable. Before you spend time pitching funders, we’ll tell you honestly whether the case is likely to attract funding. We know what funders look for and what kills a deal.
Prepare the information funders need. We can assemble the case summary, documents, legal analysis, and cost estimates that funders require to make a decision. A well-prepared funding pitch gets faster decisions and better terms.
Negotiate the funding agreement. We review funding agreements for our clients and negotiate on their behalf. We benchmark pricing, push back on one-sided terms, and ensure you retain appropriate control over the case.
Run the case with the funder as a partner. Once funding is in place, we manage the relationship with the funder, provide regular updates, and ensure you’re making informed decisions about settlement and strategy.
Litigation funding can be a powerful tool when used strategically. But like any commercial decision, it needs rigorous analysis and skilled negotiation.
If you’re facing a substantial dispute and thinking about funding, talk to us early. We’ll help you understand whether it’s the right path, and if it is, we’ll make sure you get the best possible deal.
Disclaimer: This article provides general information only and does not constitute legal advice. The suitability of litigation funding depends on the specific facts of your dispute, the funding market at the time, and your commercial objectives. You should seek independent legal advice before entering into any litigation funding arrangement.
