Third-party funders finance litigation in exchange for a share of the proceeds, and the practice is now common in commercial disputes.
Structures. Single case funding; portfolio funding across a firm’s or a company’s matters; monetisation of a judgment or award; and defence-side arrangements, which are rarer.
Non-recourse. The funder is repaid only from proceeds, which is what distinguishes it from a loan and from usury analysis.
Champerty and maintenance. Historic prohibitions survive in some jurisdictions and have been abandoned or narrowed in most. The analysis is jurisdiction-specific and should be confirmed before funding.
Control. Funders generally may not control litigation or settlement decisions. Agreements should state that the claimant and counsel retain control, because provisions giving the funder settlement approval attract challenge.
Privilege and discovery. Communications with a funder may be protected as work product where shared under a common interest or non-disclosure agreement, though the position varies. Discovery of funding arrangements is increasingly sought and increasingly ordered, and several courts require disclosure of the funder’s identity by standing order or rule.
Cost. Expensive, reflecting the risk. It makes sense where the claimant cannot otherwise fund the claim or wants the exposure off its balance sheet.