Funding commercial disputes: what are the options? 

In commercial litigation and international arbitration, financial resources can be as determinative as the legal merits of a claim. Whether arising from shareholder disputes, contractual breaches, professional negligence, or intellectual property infringement, the costs associated with legal proceedings often present a material barrier to access to justice. Increasingly, corporate clients are exploring a range of litigation funding solutions to mitigate risk, manage cash flow, and preserve control over legal expenditure. 

The Importance of Litigation Funding 

Litigation and arbitration typically involve significant costs. These include legal fees, expert witness fees, and, crucially in the jurisdiction of England and Wales, the potential exposure to adverse costs under the “loser pays” principle. 

Access to litigation funding, whether arranged through legal advisers or specialist external providers, enables parties to pursue meritorious claims without committing operational capital or exposing the business to disproportionate financial risk. For claimants, it can mean pursuing enforcement while preserving cash reserves. For defendants, funding can support strategic defence or settlement, particularly where the claim is speculative or tactically aggressive. 

Common Funding Structures 

1. Conditional Fee Agreements 

Under a conditional fee agreement, legal representatives agree to defer part or all of their fees. A success fee, typically calculated as a percentage uplift—is only payable if the matter is resolved successfully. This structure is often used in commercial disputes where liability is reasonably clear, and damages are quantifiable. A common example would be a supplier seeking damages for breach of a distribution agreement. 

Conditional fee agreements are well-established under English law and can be particularly suitable for mid-sized claims where the client’s cash flow is constrained. 

2. Damages-Based Agreements 

A damages-based agreement permits a legal adviser to receive an agreed percentage of the recovered damages, ordinarily capped at 50% in commercial matters. These agreements are particularly attractive to clients with high-value claims but limited liquidity, such as a minority shareholder bringing a claim for unfair prejudice or breach of fiduciary duty. 

Although historically underutilised due to regulatory uncertainty, recent reforms have improved their clarity and enforceability, rendering damages-based agreements a viable option in certain high-stakes disputes. 

3. Third-Party Litigation Funding 

Third-party funding involves a specialist funder financing the legal costs in exchange for a share of the proceeds, typically between 20% and 40%. Funders will conduct detailed due diligence on the legal merits, potential quantum, and enforceability of the claim. 

Third-party funding is now widely used in large-scale litigation and international arbitration. A technology company pursuing a cross-border contractual claim against a multinational bank, for example, may use third-party funding to preserve its balance sheet while maintaining commercial focus. 

In complex international arbitrations governed by rules such as those of the London Court of International Arbitration or the International Chamber of Commerce, third-party funding allows subcontractors or investors to pursue meritorious claims without assuming the full financial burden. 

4. After-the-Event Insurance 

After-the-event insurance protects a party against the risk of having to pay the opponent’s legal costs if the case is unsuccessful. It may also cover disbursements or be used as security for costs, particularly in international or offshore disputes. 

It is frequently a prerequisite for obtaining third-party funding. Policies can be structured with deferred or staged premiums, which reduces the need for substantial upfront expenditure. For distressed entities or special purpose vehicles, after-the-event insurance can be an essential risk mitigation tool while retaining decision-making autonomy. 

5. Before-the-Event Insurance 

Before-the-event insurance is often included within a business’s wider insurance arrangements and may offer limited cover for legal costs. While more commonly relevant in lower-value disputes, such as employment or property matters, it remains worthwhile for clients to review existing policies before pursuing external funding options. 

6. Legal Cost Financing 

This option functions similarly to a commercial loan, whereby a lender covers the legal fees, and the client repays them over an agreed period, usually with interest. It is particularly suitable for businesses seeking to smooth cash flow across financial reporting periods, such as in multi-party disputes arising from corporate restructurings or mergers and acquisitions. 

Unlike third-party funding, legal cost financing does not require the client to relinquish a share of any recovery, although it may have a different accounting and balance sheet impact. 

7. Litigation Crowdfunding 

Litigation crowdfunding remains rare in private commercial litigation but may be appropriate in select public interest cases or matters involving reputational or political dimensions, for example, an intellectual property dispute attracting public attention. However, the lack of confidentiality and control makes it unsuitable for most commercial claimants. 

Choosing an Appropriate Funding Strategy 

Selecting the right funding structure involves a careful evaluation of several factors, including: 

• The legal and evidential strength of the claim. 

• The client’s financial position and appetite for risk. 

• The value, duration, and complexity of the proceedings. 

• Willingness to share proceeds or control of the litigation. 

• Jurisdictional and enforcement considerations. 

• The need for confidentiality and procedural speed. 

• Regulatory and disclosure obligations, such as security for costs. 

In England and Wales, parties are often required to disclose the existence of certain funding arrangements, particularly in the context of security for costs applications or under specific arbitral rules. As such, professional legal advice is essential to ensure compliance and to manage any resulting procedural or tactical implications. 

Commercial dispute resolution lawyers routinely advise clients who are balancing litigation risk with regulatory exposure, cash flow constraints, and reputational sensitivity. These clients require not only legal guidance on the merits but strategic advice on resource allocation, downside protection, and optimal positioning for negotiation or enforcement. 

Conclusion 

Litigation funding has evolved into a sophisticated tool for managing commercial disputes. Whether enforcing contractual rights in the High Court, arbitrating cross-border joint venture disputes, or defending against speculative claims, the appropriate funding structure can level the playing field, enhance access to justice, and support more effective outcomes. 

For corporate clients and their legal advisers, understanding and deploying litigation funding is no longer a niche consideration, it is a core component of dispute strategy in the modern commercial landscape. 

You can learn more about Andre and his practice on our website, or if you need expert legal support, contact him here.