You’re facing a dispute that could be worth hundreds of thousands, maybe millions. You have a strong case. But the legal costs? They’re eye-watering. And you’re not sure whether your cash flow can handle the risk.
Here’s what most business owners don’t know: you don’t have to shoulder that risk alone.
Litigation funding exists to share legal risk. But many clients never hear about it from their lawyers. That’s a problem. Because without understanding your options, you can’t make an informed decision about how to finance your dispute, how to manage risk, or whether to pursue your claim at all.
In the UK, advising clients about litigation funding is part of a lawyer’s professional obligation. Australian lawyers face no such requirement. But they should.
This article explains why transparency around litigation funding matters, what you stand to gain from understanding your options, and what you should expect from your legal team.
Key Takeaways
- Litigation funding is an option most clients don’t know they have, it allows you to share legal risk with a third party funder, protecting your cash flow and limiting exposure
- Funding options are flexible, not all-or-nothing, from full funding to disbursement-only coverage to blended arrangements, there’s a structure to suit different risk appetites
- Funders act as a filter for weak claims, their due diligence provides an independent assessment of your case’s merit and likely return on investment
- Australian funders now face stricter regulation, recent reforms require funders to hold an AFSL and prioritise client interests, raising the standard across the industry
- Transparency around funding improves lawyer behaviour, when clients understand pricing and funding options, lawyers are incentivised to provide clearer, more competitive advice
- You have a right to understand all your options, your lawyer’s job is to help you make informed decisions, and that includes explaining how to finance and de-risk your dispute
The Opportunity Most Clients Never Hear About
When cash flow is tight, the thinking often stops at: “We can’t afford to take legal action.”
That’s where the conversation ends for many businesses. The claim sits. The opportunity passes. The wrong goes unaddressed.
But there’s another path, and it starts with a simple realisation: you don’t have to fund litigation out of your own pocket.
Litigation funding allows you to share the investment and the risk with a third party. The funder covers some or all of your legal costs. In exchange, they receive a percentage of the damages if you win. If you lose, they wear the cost. Your exposure is capped.
For clients with strong claims but limited cash flow, this is the difference between pursuing a valuable claim and letting it die on the vine.
But even clients with available cash flow often don’t realise the value of this option. Without understanding that risk-sharing arrangements exist, businesses can devalue the investment opportunity their litigation represents. There’s a dispirited view: better to spend the money elsewhere than risk losing it all if the claim fails.
The result? Conflict gets swept under the carpet. Value goes unrealised. And the client never learns they had another choice.
The problem isn’t just that clients can’t afford litigation. It’s that they don’t know risk-sharing arrangements exist. Once you understand the options, the decision-making process changes entirely.
How Litigation Funding Actually Works
Litigation funding isn’t a one-size-fits-all arrangement. There are multiple structures, each suited to different circumstances and risk appetites.
Full Third-Party Funding
This is the most common arrangement. A litigation funder covers all of your legal costs: solicitor fees, barrister fees, court filing fees, expert witness costs, the lot.
In exchange, the funder receives a percentage of the damages awarded if you win. That percentage is agreed upfront. Typically, it ranges from 20% to 40% of the recovered amount, depending on the risk and complexity of the case.
If you lose, you pay nothing. The funder wears the cost. Your downside risk is eliminated.
This structure is ideal for clients who want to pursue a claim but don’t have the cash flow to fund it themselves, or who want to preserve capital for other business needs.
Disbursement-Only Funding
Not every client needs full funding. Some have the budget to cover their own solicitor fees but want to limit exposure to the hard costs that litigation racks up.
Disbursement-only funding covers the out-of-pocket costs: barrister fees, expert reports, court filing fees, mediation costs. Your own solicitors’ fees remain your responsibility.
This structure reduces the funder’s percentage cut, because they’re taking on less risk. It’s a middle ground: you retain more control over the case, you pay less to the funder, but you still get protection from the big-ticket disbursements that can blow out unexpectedly.
It works well for businesses that want to de-risk the litigation without giving up a large share of the damages.
Blended Funding Arrangements
Some disputes benefit from a hybrid approach. You cover part of the costs. The funder covers the rest.
Blended arrangements can be structured in countless ways. The funder might cover all disbursements while you cover solicitor fees. Or you might cover the first $200,000, and the funder covers everything beyond that. Or you split costs 50/50 but negotiate a lower percentage cut for the funder.
The point is flexibility. Funding arrangements aren’t rigid. They’re negotiable. And the best structure is the one that aligns with your risk appetite, your cash flow, and the value of the claim.
Before assuming you need full funding, talk through the numbers with your lawyer. A blended arrangement might give you more control and a larger share of the damages while still protecting you from the costs that matter most.
Adverse Costs Insurance: The Other Half of the Risk Equation
Litigation funding addresses one half of the risk equation: your own legal costs. But what about the other side?
If you lose, you might have to pay the other party’s legal costs. That’s the adverse costs risk. And it’s the part that keeps many clients up at night.
Adverse costs insurance exists to cap that exposure. You pay a premium upfront. If you lose, the insurer covers the other side’s costs up to the policy limit. Your downside is fixed.
This insurance can be purchased on its own or bundled with a litigation funding arrangement. Many funders now offer combined products: they cover your costs, and they insure you against adverse costs. The premium is either paid upfront or deducted from any damages awarded.
The result? You know your maximum exposure before you start. No nasty surprises if the case doesn’t go your way.
Can you articulate your total downside risk right now? If you can’t, you need to ask your lawyer about adverse costs insurance.
Understanding your funding options isn’t just about covering your own costs. It’s about knowing your total exposure, win or lose. Adverse costs insurance turns an uncertain risk into a known, manageable number.
Why Litigation Funders Are Selective: The Filter Effect
Here’s something most clients don’t realise: litigation funders say no to most cases.
They don’t fund weak claims. They don’t fund claims where the costs are disproportionate to the likely recovery. They don’t fund claims with unclear prospects or where the defendant can’t pay.
Before a funder agrees to invest, they do serious due diligence. They review the pleadings. They assess the evidence. They talk to the lawyers. They model the likely costs and the likely recovery. They look at comparable cases. They assess the defendant’s financial position.
In effect, they act as an independent filter.
If a funder declines your case, that’s information. It doesn’t mean you can’t proceed, but it does mean the funder sees risks you might not have considered. Maybe the legal costs are too high relative to the damages. Maybe the case has weaknesses that need addressing. Maybe the defendant is judgment-proof.
If a funder agrees to invest, that’s also information. It means an independent party with skin in the game believes your case has merit, believes the costs are proportionate, and believes there’s a viable path to recovery.
This is another level of assurance. You place trust in your lawyer that the claim is winnable. But your lawyer is billing you either way. The funder only gets paid if you win. Their incentives are aligned with yours.
Preparing a case for funding prevents charging forward without strategy. It forces rigour. It informs you in the process. And it provides a check on whether the litigation is genuinely a worthwhile investment.
Even if you don’t need funding, consider approaching a funder for an assessment. Their independent view of your case’s merits and economics can be invaluable.
Regulatory Change: Litigation Funders Now Face Higher Standards
For years, litigation funding in Australia operated in a regulatory grey zone. Funders weren’t subject to the same oversight as other financial services providers. That’s changing.
Following an inquiry into the litigation funding industry, the Australian government announced in 2020 that litigation funders would be required to hold an Australian Financial Services Licence (AFSL). This reform has now been implemented.
What does that mean for you as a client?
It means funders are now regulated to behave in specific ways. They must provide financial advice efficiently, honestly, and fairly. They must place client interests above all other parties. They must maintain risk management systems. They must meet ongoing compliance obligations.
The AFSL regime imports a host of protections that previously didn’t exist. Funders face penalties if they breach their obligations. Clients have clearer avenues for complaint and redress.
This is a significant step forward. Litigation funding is now a regulated financial product. The industry has been professionalised. The cowboys have been weeded out.
For clients, this means greater transparency, stronger protections, and a higher standard of conduct from funders. It’s one more reason why understanding your funding options matters: the products available today are more robust and client-focused than they were five years ago.
Litigation funders in Australia are now subject to the same regulatory standards as other financial services providers. This isn’t a niche, unregulated industry anymore. It’s a mature market with strong consumer protections.
What Transparency Around Funding Does to Lawyer Behaviour
When clients understand their funding options, lawyer behaviour changes.
Here’s why.
Aligned Interests
Litigation funders don’t just assess the claim. They assess the lawyers. They look at the firm’s track record. They look at how the team operates. They look at past performance in comparable matters.
If a funder backs a case, they’re backing the lawyers as much as the claim. That creates reputational pressure. Lawyers know that how they run a funded matter will affect their ability to secure funding for future clients.
The result? Lawyers are incentivised to get results in funded matters. Not just to win, but to run the case efficiently and strategically. Because funders remember which firms deliver and which ones don’t.
Funders also monitor proceedings. They’re not heavily involved day-to-day, but they check in. They ensure the case is being run as described. They act as a check on cost blowouts and strategic drift.
This oversight benefits clients. It’s an extra layer of accountability that doesn’t exist in traditional fee arrangements.
Competitive Pressure on Pricing
When clients don’t understand their options, lawyers can price without competitive pressure. There’s no benchmark. No comparison. Just trust that the quoted fees are “reasonable and proportionate.”
But what does reasonable mean?
Transparency around funding creates a natural comparison point. If a client knows they could have their case fully funded in exchange for 30% of the damages, they can assess whether paying $500,000 in legal fees out of pocket makes sense. They can weigh the trade-offs.
This forces lawyers to be clearer about pricing. What are the boundaries? What are the unknowns? What’s included, and what’s not? What’s the likely total spend?
Clients who understand funding options are better equipped to ask these questions. And lawyers who know their clients are informed are incentivised to provide clearer, more competitive advice.
When your lawyer quotes fees, ask this: “If I pursued funding instead, what would that look like?” The answer will tell you a lot about whether the quoted fees are proportionate to the value of the claim.
Why Australian Lawyers Should Be Required to Advise on Funding
In the UK, solicitors are required by professional conduct rules to advise clients about litigation funding options. It’s part of the duty to provide clear and timely advice that allows clients to make informed decisions.
In Australia, there’s no such requirement.
The Australian Solicitors’ Conduct Rules require lawyers to provide “clear and timely advice” generally. But that’s vague. It’s not enforceable by a third party. And it doesn’t specifically cover funding options.
The result? Many clients never hear about litigation funding from their lawyers. They might learn about it from a funder. They might read about it online. Or they might never learn about it at all.
That’s a failure of professional duty.
The role of a lawyer is to resolve the client’s problem. Complete focus on the objective. Full transparency. All options considered.
Outcome and price are the two most common concerns for clients. But how can a client assess price if they don’t understand the alternatives? How can they make an informed decision about risk if they don’t know risk-sharing arrangements exist?
A more professional approach is for clients to understand and be able to compare pricing and funding options. What are the implications of a funding agreement? What are the boundaries? What are the unknowns? What’s an appropriate level of risk for the claim at hand?
Sometimes litigation funding won’t be a viable option. The claim might not meet a funder’s risk thresholds. The economics might not work. But that assessment should be part of the advice a lawyer provides, not an afterthought.
Clients expect a lawyer to know the intricacies of the law and how to navigate the process. It makes little sense that there’s a duty to know but not a duty to tell.
If UK lawyers are required to advise clients about funding options, why aren’t Australian lawyers? The professional standard should be the same: clients have a right to understand how they can finance and de-risk their disputes.
What You Should Expect From Your Lawyer
So what does good practice look like?
If you’re facing a dispute, your lawyer should walk you through your options. Not just the legal strategy, but the financial strategy.
That conversation should cover:
- Whether litigation funding is available for your type of claim. Not all disputes are fundable. Some are too small. Some are too speculative. Some involve issues funders won’t touch. Your lawyer should know which category your claim falls into.
- What funding structures make sense for your situation. Full funding? Disbursement-only? Blended? Adverse costs insurance? The right structure depends on your cash flow, your risk appetite, and the economics of the claim.
- How the funder’s return is calculated. Is it a percentage of damages? A multiple of invested capital? A combination? What happens if you settle early? What happens if you win but the defendant can’t pay? These details matter.
- What control you retain over the case. Does the funder have approval rights over settlement offers? Can they veto strategic decisions? What happens if you want to discontinue? These questions should be answered upfront.
- How funding compares to paying your own way. If you fund the case yourself and win, you keep all the damages (minus legal costs). If you use a funder, you keep less, but your downside risk is capped. Your lawyer should help you weigh these trade-offs.
- What the likely total cost will be if you self-fund. Not just the initial estimate. The likely total, including the risk of cost blowouts, adverse costs if you lose, and opportunity cost of tying up capital in litigation.
This isn’t a five-minute conversation. It’s a strategic discussion that happens early, before you commit to a path.
If your lawyer hasn’t raised funding as an option, ask why. If they dismiss it without explaining the reasoning, push back. You have a right to understand the alternatives.
Before you commit to funding your dispute out of pocket, get a second opinion. Even if you don’t ultimately pursue funding, understanding the option will sharpen your thinking about whether the litigation is worth the investment.
When Funding Doesn’t Make Sense
Litigation funding isn’t right for every dispute. There are cases where it doesn’t make sense, and your lawyer should tell you that too.
Small Claims
Most funders have minimum claim thresholds. If the likely recovery is below $500,000 or $1 million, many funders won’t consider the case. The economics don’t work for them.
If your claim is smaller, funding might not be an option. That doesn’t mean you shouldn’t pursue the claim. It just means you’ll need to assess the risk and the costs on your own.
Uncertain Liability
Funders back cases where liability is relatively clear and the fight is over quantum (the amount of damages). If liability is uncertain, or if your case turns on a novel legal argument, funders are less likely to invest.
Again, that’s information. It doesn’t mean your case is weak. But it does mean you’re taking on more risk than a funder is willing to bear.
Defendant Can’t Pay
If you win but the defendant can’t pay, the funder gets nothing. So funders assess the defendant’s financial position carefully. If there’s a real risk the defendant is insolvent or judgment-proof, funders will decline.
Your lawyer should assess this risk with or without a funder. There’s no point spending $300,000 to win a $1 million judgment if the defendant has no assets and no insurance.
You Want Maximum Control
Funders typically have some approval rights over key decisions: whether to settle, whether to appeal, whether to discontinue. If you want absolute control over every aspect of the case, funding might not suit you.
That’s a trade-off. You gain risk protection, but you give up some autonomy. For some clients, that trade-off makes sense. For others, it doesn’t.
A good lawyer will tell you when funding doesn’t make sense, not just when it does. The point isn’t to funnel every client into a funding arrangement. The point is to help you make an informed decision.
The Bigger Picture: Professionalising the Industry
The shift toward greater transparency around litigation funding is part of a broader shift in the legal profession.
Clients are more informed. They’re more commercially sophisticated. They expect more from their lawyers than they did 20 years ago.
The old model, where lawyers quoted vague estimates and clients trusted blindly, doesn’t work anymore. Clients want to understand their options. They want to compare alternatives. They want to make decisions based on complete information.
Litigation funding is just one piece of that puzzle. But it’s an important piece. Because funding options change the risk equation entirely. And if clients don’t understand those options, they can’t make informed decisions about whether to pursue their claims.
As litigation funders face stricter regulation and higher standards, the pressure is on lawyers to match that standard. Funders are now required to prioritise client interests. Lawyers should be too.
That means explaining funding options clearly. It means comparing pricing structures honestly. It means helping clients understand not just the legal strategy, but the financial strategy.
It means treating clients as partners, not as passive recipients of legal advice.
The professionalisation of litigation funding creates an opportunity for lawyers to lift their game. Clients who understand their options are better equipped to make decisions. And lawyers who help them understand are better equipped to deliver value.
What This Means for You
If you’re facing a dispute, here’s what you should take away from this article.
You don’t have to shoulder all the risk yourself. Litigation funding exists to share that risk. It’s not a niche product. It’s a mature, regulated market with strong consumer protections.
Your lawyer should explain your options. Not as an afterthought, but as part of the initial strategy discussion. Full funding, disbursement-only funding, blended arrangements, adverse costs insurance, these are all tools you can use to manage risk and protect your business.
If a funder backs your case, that’s an independent validation of its merits. If a funder declines, that’s information too. Either way, you’re better off knowing.
And if your lawyer hasn’t raised funding as an option, ask why. You have a right to understand the alternatives. You have a right to make an informed decision about how to finance your dispute.
The goal isn’t to push every client into a funding arrangement. The goal is to ensure you understand what’s available and what makes sense for your situation.
Because when you understand your options, you can make better decisions. And better decisions lead to better outcomes.
Before you commit to any path, funded or self-funded, make sure you can answer these questions: What’s my total downside risk? What’s my likely recovery? What are the costs? What share of the damages will I keep? If you can answer those questions clearly, you’re in a strong position. If you can’t, keep asking until you get clarity.
Disclaimer: This article provides general information only and does not constitute legal advice. Every dispute is different. If you’re facing a commercial or tax dispute and want to understand your funding options, contact Aptum Legal for a confidential discussion tailored to your circumstances.
