Commercial: Litigation Funding.

May 2, 2025

Litigation Funding in England & Wales: Key Options for Commercial, Negligence, and Defamation Claims

Introduction

Litigation in England and Wales is often financially prohibitive. The “loser pays” rule, the English costs-shifting principle, exposes both claimants and defendants to significant adverse costs liability. In recent years, a broad range of litigation funding mechanisms has developed to manage this risk and facilitate access to justice. These options include self-funding, Conditional Fee Agreements (CFAs), Damages-Based Agreements (DBAs), legal expenses insurance, third-party funding, and crowdfunding. Each carries distinct legal implications and suitability depending on the nature of the dispute and the client profile.

Private (Self) Funding

Under traditional private funding, clients pay their legal costs directly, whether individuals or corporate entities. The client assumes full financial responsibility throughout the litigation. If successful, they may recover part of their costs under the costs-shifting rule, although recovery is typically partial. This model affords full control but entails the highest financial risk, especially in adverse costs scenarios. Well-resourced clients may prefer private funding to avoid sharing proceeds, but it is generally ill-suited to risk-averse or financially constrained litigants.

Conditional Fee Agreements (CFAs)

CFAs, commonly known as “no win, no fee” arrangements, allow a solicitor to defer some or all fees until a successful outcome is achieved. Introduced by the Courts and Legal Services Act 1990, and significantly affected by LASPO 2012, CFAs are lawful provided they meet statutory requirements. The success fee, an uplift on base costs, is now irrecoverable from the losing party (with limited exceptions), and must instead be paid from the client’s damages. CFAs are widely used in defamation, professional negligence, and commercial claims, especially where claimants lack the means to pay upfront. Solicitors are typically more amenable to CFAs where the merits are strong, the quantum high, and the opponent solvent.

Damages-Based Agreements (DBAs)

DBAs, permitted since 2013 under LASPO and governed by the Damages-Based Agreements Regulations 2013, allow solicitors to charge a percentage of damages recovered. If the client loses, no fee is payable. The contingency fee is capped at 50% of the damages (inclusive of VAT and counsel’s fees) in most civil claims. DBAs can offer full risk-transfer for clients but are less widely used due to regulatory uncertainty, particularly around hybrid models. The Court of Appeal in Zuberi v Lexlaw [2021] confirmed that termination clauses are valid if properly drafted, enhancing enforceability. Following the Supreme Court’s decision in PACCAR [2023] UKSC 28, litigation funders who take a percentage of damages may also be subject to DBA regulations.

Before-the-Event (BTE) Insurance

BTE insurance covers legal costs incurred in future disputes and is often embedded in home, motor, or business insurance policies. It can cover both own-side and adverse costs, subject to policy limits and conditions (e.g. minimum merits thresholds). BTE insurance can be valuable in personal and small business disputes, including professional negligence. However, defamation is commonly excluded from standard BTE policies. Insureds are entitled to choose their own solicitor once litigation commences, though insurers may prefer panel firms.

After-the-Event (ATE) Insurance

ATE insurance, purchased after a dispute arises, covers the risk of losing, primarily the opponent’s costs and potentially disbursements. Premiums are often deferred and contingent on success. Following LASPO, ATE premiums are generally irrecoverable from the losing party, except in specific cases such as defamation or clinical negligence (for expert reports). ATE is commonly used in conjunction with CFAs and third-party funding. It can be essential in defamation and professional negligence claims, where adverse costs can be ruinous. Availability is subject to insurers’ risk assessments.

Third-Party Litigation Funding (TPLF)

TPLF involves an external funder, typically an investment firm, financing litigation in exchange for a share of any recovery. The funding is non-recourse: if the case fails, the claimant owes nothing. Courts have endorsed the legitimacy of such arrangements, subject to safeguards against champerty and undue control. The Association of Litigation Funders regulates funders via a self-regulatory code. The Arkin cap principle, limiting funder liability to the amount funded, has been relaxed following ChapelGate v Money [2020], with courts retaining discretion to award full costs against funders.

TPLF is generally reserved for high-value claims with strong merits and collectability. Funders prefer commercial and negligence cases with damages typically exceeding £10 million. Defamation cases rarely attract such funding due to low damages and reputational sensitivities. PACCAR has unsettled the legality of percentage-based funder returns, pending legislative reform. In response, funders are restructuring agreements around multiples of investment rather than percentage shares.

Crowdfunding

Crowdfunding legal action involves soliciting public donations, often via online platforms such as CrowdJustice. This model is commonly used in defamation, public interest, or group claims. It allows litigants with popular causes but limited means to access funding. Crowdfunding does not offer protection against adverse costs, and donors typically receive no financial return. Campaigns must be carefully managed to avoid prejudicing the litigation or breaching professional obligations. Funds are handled by solicitors in compliance with regulatory rules.

Choosing a Funding Model: Strategic Considerations

Selecting a funding mechanism requires a bespoke analysis. Key considerations include:

• Client financial capacity: Wealthier clients may self-fund; impecunious clients may need CFAs, DBAs, or crowdfunding.
• Merits and value: Funders and insurers require strong prospects and significant damages.
• Case type and objectives: DBAs may be inappropriate where non-financial relief (e.g. apologies) is sought.
• Costs exposure: ATE insurance is vital in most CFA/DBA models to address adverse costs.
• Control and confidentiality: TPLF introduces an external stakeholder, while CFA/DBA aligns lawyer interest with client outcome.
• Regulatory compliance: CFAs and DBAs must meet formal requirements. Solicitors must ensure client understanding and agreement transparency.
• Combination models: Mixed funding is common (e.g. CFA + ATE + crowdfunding). Some combinations are restricted (e.g. simultaneous CFA and DBA for the same work).

Conclusion

The litigation funding environment in England and Wales has evolved into a sophisticated ecosystem. While LASPO curtailed recoverability of success fees and premiums, it expanded the permitted toolkit. Recent jurisprudence, particularly PACCAR, continues to shape the boundaries of enforceable arrangements. For clients, the choice of funding method is now integral to litigation strategy. Careful legal advice at the outset is essential to ensure that the chosen model aligns with risk tolerance, case objectives, and commercial realities. Done correctly, litigation funding facilitates access to justice while managing financial exposure for both individuals and businesses.