Civil Law and Third-Party Litigation Funding Regulation

1. Introduction

Third-party litigation funding (TPLF) is an arrangement under which a person or entity that is not a party to the dispute provides money or other financial support to a litigant in return for an agreed financial return, usually if the litigation or arbitration succeeds.

For example:

Claimant → brings civil claim → Defendant
Funder → finances Claimant → receives agreed return if successful

Litigation funding can improve access to justice, especially where a claimant has a strong claim but lacks sufficient resources to finance complex litigation. At the same time, it creates concerns involving conflicts of interest, control of litigation, confidentiality, disclosure, excessive returns, settlement decisions, insolvency, champerty, maintenance, professional ethics and abuse of process.

The regulation of litigation funding differs significantly between jurisdictions. England and Wales, India, the United States, Australia and Singapore have developed different approaches.

2. Meaning of Third-Party Litigation Funding

A third-party litigation funder is generally an individual, company, investment fund, insurer or other entity that finances litigation without being the original claimant or defendant.

Funding may cover:

• lawyers' fees;
• expert fees;
• court fees;
• arbitration costs;
• investigation expenses;
• disclosure/discovery costs;
• adverse-cost exposure;
• enforcement expenses.

The funder's return may be:

• a percentage of damages;
• a multiple of the amount invested;
• a combination of investment and success-based return.

3. Difference Between Litigation Funding and Ordinary Legal Services

Litigation funding

The funder provides financial resources and generally does not act as the claimant's lawyer.

Conditional fee arrangement

The lawyer's own remuneration may depend upon the outcome of the case.

Legal expenses insurance

An insurer pays specified legal costs under an insurance policy.

Contingency fee

A lawyer's fee is calculated by reference to the amount recovered, where legally permitted.

Third-party funding

A separate third party finances the litigation in return for an economic interest in the outcome.

4. Maintenance and Champerty

Historically, common law developed two doctrines.

Maintenance

Maintenance traditionally involved improper financial or other assistance to litigation by a person without a legitimate interest in the dispute.

Champerty

Champerty is generally regarded as an aggravated form of maintenance where the supporting party has an interest in the proceeds or outcome of the litigation.

Historically, these doctrines were intended to prevent:

• speculative litigation;
• trafficking in lawsuits;
• improper influence;
• vexatious claims;
• corruption of judicial processes.

Modern commercial litigation funding has caused many jurisdictions to reconsider the continuing scope of these doctrines.

5. Why Litigation Funding Is Used

TPLF can provide important benefits.

A. Access to justice

A claimant with limited resources can pursue a legitimate claim.

B. Risk allocation

The claimant transfers some financial risk to the funder.

C. Complex litigation

Large disputes involving expert evidence and extensive disclosure can be expensive.

D. Insolvent claimants

A company with insufficient cash may use funding to pursue valuable claims.

E. Collective claims

Funding can facilitate large-scale consumer, shareholder or environmental claims.

F. Arbitration

International arbitration can involve substantial:

• tribunal fees;
• institutional fees;
• expert costs;
• document production;
• enforcement expenses.

Funding may therefore be particularly important in arbitration.

6. Risks Created by Third-Party Funding

TPLF also creates legal concerns.

1. Funder control

A funder may attempt to influence litigation strategy or settlement.

2. Conflict of interest

The interests of:

• claimant;
• lawyer;
• funder;

may diverge.

3. Confidentiality

Information provided to a prospective or actual funder may create issues concerning legal privilege and confidentiality.

4. Excessive return

A funding agreement may allocate a substantial portion of the recovery to the funder.

5. Security for costs

A defendant may argue that a funded claimant should provide security for potential costs.

6. Disclosure

Courts or arbitral tribunals may require disclosure of:

• the existence of funding;
• identity of the funder;
• funding terms;
• conflicts;
• security arrangements.

7. Insolvency

The funding arrangement may become controversial if the claimant becomes insolvent or the litigation is abandoned.

7. Key Regulatory Principles

A. Independence of the claimant

The claimant should ordinarily retain meaningful control over the litigation.

B. Independence of legal counsel

The funder should not improperly interfere with the lawyer's professional judgment.

C. Disclosure

Disclosure requirements should address legitimate concerns about conflicts and costs without unnecessarily revealing privileged commercial information.

D. Adequate capital

A funder should have sufficient resources to meet its contractual funding commitments.

E. No abuse of process

Funding should not transform litigation into speculative or oppressive proceedings.

F. Transparency

Courts and tribunals should be able to identify circumstances that could affect the integrity of proceedings.

8. Important Case Laws

1. Giles v. Thompson, [1994] 1 AC 142

Principle

The House of Lords examined the historical doctrines of maintenance and champerty.

The Court recognized that these doctrines were historically connected with concerns about improper interference with litigation.

Relevance

The decision is important for understanding the historical basis upon which modern litigation-funding regulation developed.

It demonstrates that maintenance and champerty were not merely technical contractual doctrines; they were concerned with protecting the integrity of the administration of justice.

Importance

A foundational modern English authority on the continuing significance of maintenance and champerty.

9. Excalibur Ventures LLC v. Texas Keystone Inc., [2013] EWHC 2767 (Comm); [2016] EWCA Civ 1144

Principle

This is one of the most important English cases concerning third-party litigation funding and costs liability.

The funders supported very substantial litigation that ultimately failed.

The court considered the extent to which funders could be exposed to adverse costs consequences.

Relevance

The case demonstrates a critical regulatory principle:

Funding litigation does not necessarily insulate the funder from the financial consequences of unsuccessful or improperly conducted litigation.

The court scrutinized the funders' involvement and the manner in which the litigation had been conducted.

Importance

A leading authority on the relationship between litigation funding and costs.

10. R (Factortame Ltd) v. Secretary of State for Transport (No. 8), [2002] EWCA Civ 932

Principle

The Factortame litigation involved extensive public and private litigation concerning governmental measures and European law.

The case is significant in the development of litigation funding and costs mechanisms, including the treatment of conditional and third-party financial arrangements.

Relevance

It demonstrates the importance of financing mechanisms in large-scale, complex litigation where ordinary private funding may be inadequate.

Importance

Useful for understanding the relationship between funding arrangements, access to justice and litigation costs.

11. Arkin v. Borchard Lines Ltd, [2005] EWCA Civ 655

Principle

The Court of Appeal considered the potential costs exposure of a professional litigation funder.

The court developed what became known as the Arkin cap, under which a commercial funder's liability for the opposing party's costs was linked, in appropriate circumstances, to the amount the funder had contributed.

Relevance

The case is extremely important because it addresses the question:

How much adverse-cost liability should a third-party funder bear?

Importance

For many years, Arkin served as an important reference point in English litigation funding.

However, later case law has demonstrated that the position is not always mechanically determined by the Arkin cap, particularly where the funder's involvement or conduct justifies a broader costs order.

12. Chapelgate Masterfund Opportunity Ltd v. Money, [2020] EWCA Civ 246

Principle

The Court of Appeal considered the application of the Arkin approach to litigation funders and the circumstances in which a funder could face costs consequences.

Relevance

The case illustrates that litigation funding does not create an automatic immunity from adverse costs.

The court examines:

• nature of funding;
• funder's role;
• contractual arrangement;
• conduct;
• justice of the particular costs order.

Importance

It demonstrates the modern judicial approach to regulating funder exposure.

13. Davey v Money, [2019] EWHC 997 (Ch)

Principle

The High Court examined litigation funding arrangements and costs issues in substantial proceedings.

The case reinforced the principle that the court may scrutinize the economic reality and practical role of funders, rather than simply accepting the formal description of an arrangement.

Relevance

It is particularly useful when considering:

• funder control;
• funding structures;
• costs;
• the distinction between genuine litigation funding and arrangements that may amount to improper intervention.

Importance

Shows the increasing judicial scrutiny of litigation funding structures.

14. R (on the application of PACCAR Inc) v. Competition Appeal Tribunal, [2023] UKSC 28

Principle

This is a major modern UK Supreme Court decision concerning litigation funding in collective competition claims.

The Supreme Court considered whether certain litigation funding agreements constituted damages-based agreements (DBAs).

The Court concluded that certain agreements under which funders' remuneration depended on the amount recovered could fall within the statutory DBA framework.

Relevance

The decision had major consequences for litigation funding because agreements previously treated as ordinary funding arrangements could potentially become subject to stricter statutory requirements.

Importance

It is one of the most significant recent authorities on the regulation of third-party litigation funding in England and Wales.

15. R (Merricks) v. Competition Appeal Tribunal, [2021] UKSC 23

Principle

The Supreme Court addressed the certification of collective proceedings under the UK's competition-law collective-action regime.

Relevance

Although not exclusively a litigation-funding case, funding is highly relevant to collective proceedings because such claims often depend upon external financing.

The case demonstrates the judicial importance of ensuring that collective proceedings are properly structured and capable of being fairly managed.

Importance

Useful for understanding the interaction between collective redress and litigation financing.

16. Bolingbroke v. Local Government Board, [1907] 1 Ch 434

Principle

The case is historically relevant to restrictions surrounding maintenance and champerty.

Relevance

It illustrates the older judicial concern that financial interests in litigation could undermine the integrity of legal proceedings.

Importance

It is best understood as historical/foundational authority, rather than as a modern regulatory decision concerning professional litigation funding.

17. Third-Party Funding in India

India does not have a single comprehensive statute regulating all forms of third-party litigation funding.

The position is instead influenced by:

• Contract law;
• Civil Procedure Code;
• professional conduct rules;
• arbitration law;
• judicial decisions;
• rules concerning advocates;
• public-policy considerations.

The traditional Indian approach has generally distinguished champertous agreements from agreements that are genuinely oppressive, unconscionable or contrary to public policy.

18. Ram Coomar Coondoo v. Chunder Canto Mookerjee, (1876) 2 IA 186

Principle

The Privy Council considered an agreement concerning litigation funding and the historical doctrines associated with maintenance and champerty.

The decision is significant in Indian legal history because it recognized that agreements involving maintenance or champerty are not automatically void merely because they involve financial assistance for litigation.

Relevance

The court's approach focused on whether the arrangement was:

• extortionate;
• unconscionable;
• improper;
• contrary to public policy.

Importance

A foundational Indian authority concerning litigation financing and champerty.

19. Bar Council of India v. A.K. Balaji, (2018) 5 SCC 379

Principle

The Supreme Court considered the regulation of legal services and the involvement of non-lawyers in the legal profession.

Relevance

Although not a pure TPLF case, the decision is important when examining the boundaries between:

• litigation funding;
• legal practice;
• professional independence;
• non-lawyer involvement in litigation.

Importance

It helps establish that funding a case and practising law are legally distinct concepts, although particular arrangements must be examined carefully.

20. Third-Party Funding and Arbitration

TPLF has become particularly significant in international arbitration.

A funder may finance:

• tribunal fees;
• institutional fees;
• counsel;
• experts;
• document production;
• enforcement;
• security for costs.

Arbitration institutions and national laws increasingly address funding through:

• disclosure obligations;
• conflict rules;
• tribunal powers;
• security for costs;
• costs orders.

The central concern is ensuring that funding does not compromise the independence and impartiality of the tribunal.

21. Disclosure of Funding

Disclosure can serve several purposes.

Conflict checking

The tribunal may need to know who economically supports a party.

Arbitrator independence

A funder may have relationships with:

• arbitrators;
• law firms;
• experts;
• other parties.

Costs

The existence and structure of funding can be relevant to security-for-costs applications.

Enforcement

Disclosure can sometimes become relevant where a party seeks to understand the financial capacity supporting enforcement.

However, disclosure should be proportionate and should not automatically expose privileged legal advice or commercially sensitive information.

22. Security for Costs

A defendant may argue:

“If the claimant loses, there may be no assets from which I can recover my costs.”

The court may therefore order security for costs in appropriate circumstances.

Funding may be relevant because it can demonstrate that:

• a claimant has financial backing;
• the funder may or may not cover adverse costs;
• the claimant may be impecunious;
• the litigation creates a recoverability risk.

But the mere existence of funding does not automatically justify security for costs.

The court must consider the applicable procedural rules and overall circumstances.

23. Funder Control

One of the most important regulatory issues is the degree of control exercised by the funder.

A funding agreement should ideally distinguish between:

Claimant's decisions

• litigation strategy;
• acceptance or rejection of settlement;
• instructions to lawyers.

Funder's legitimate interests

• monitoring expenditure;
• assessing litigation risk;
• receiving information;
• protecting its investment.

A funder that effectively controls the litigation may face increased legal and costs risks.

24. Confidentiality and Legal Privilege

When a claimant approaches a funder, it may disclose:

• pleadings;
• expert reports;
• legal assessments;
• evidence;
• settlement analyses;
• litigation budgets.

The legal status of these communications must be considered carefully.

Confidentiality and privilege are not necessarily identical.

A funding agreement should therefore contain appropriate provisions dealing with:

• confidentiality;
• permitted disclosures;
• privileged materials;
• information sharing;
• termination;
• enforcement.

25. Regulation of Funding Agreements

A well-structured funding agreement should generally address:

1. amount of funding;
2. purpose of funding;
3. funder's return;
4. control of litigation;
5. settlement authority;
6. counsel selection;
7. termination;
8. adverse costs;
9. security for costs;
10. confidentiality;
11. privilege;
12. disclosure;
13. conflicts of interest;
14. enforcement;
15. insolvency;
16. dispute resolution.

26. Consumer and Class-Action Funding

TPLF can be particularly important in collective litigation.

For example:

10,000 consumers → collective claim → litigation funder

Without funding, individual consumers may be unable to afford:

• lawyers;
• expert evidence;
• technical investigations;
• court costs.

Funding can therefore make collective redress practically possible.

However, courts must guard against:

• speculative claims;
• excessive funder returns;
• conflicts;
• inadequate representation;
• settlement decisions driven primarily by funder economics.

27. Advantages and Disadvantages

28. Regulatory Model

An effective regulatory system should seek to achieve three objectives:

1. Access to justice

Legitimate claimants should not be denied justice merely because they lack financial resources.

2. Procedural integrity

Funding must not undermine:

• judicial independence;
• tribunal impartiality;
• professional ethics;
• fair settlement;
• honest litigation.

3. Fair allocation of risk

The claimant, defendant and funder should bear appropriate financial consequences according to their respective roles.

29. Practical Example

Suppose Company A has a ₹100 crore commercial claim against Company B.

A has a strong case but cannot afford ₹10 crore in litigation expenses.

A enters into a funding agreement with Fund X.

Fund X agrees to provide ₹10 crore.

In return, Fund X will receive an agreed portion of the recovery if A succeeds.

The court may need to consider:

• whether the funding agreement is lawful;
• whether the funder's return is permissible;
• whether Fund X controls litigation;
• whether disclosure is required;
• whether Fund X can be exposed to adverse costs;
• whether A should provide security for costs;
• whether lawyers' professional independence is protected.

If A wins, the funding agreement determines the funder's contractual return, subject to applicable law and regulatory limits.

If A loses, questions may arise concerning:

• repayment;
• termination;
• adverse costs;
• funder's liability;
• security arrangements.

30. Key Case-Law Table

31. Core Legal Principles

The law of third-party litigation funding can be reduced to the following principles:

1. Funding is not necessarily unlawful merely because the funder has no direct interest in the original dispute.
2. Historical maintenance and champerty doctrines remain relevant in some jurisdictions.
3. Modern courts increasingly distinguish legitimate commercial funding from abusive litigation arrangements.
4. A funder's involvement can have consequences for adverse costs.
5. The claimant should ordinarily retain meaningful control over settlement and litigation strategy.
6. Disclosure may be required to identify conflicts and address costs concerns.
7. Confidentiality and privilege require careful contractual and procedural protection.
8. Funding agreements must comply with applicable statutory requirements.
9. Collective and complex litigation particularly benefits from funding.
10. The ultimate objective is to balance access to justice with protection against abusive or conflicted litigation.

Conclusion

Third-party litigation funding regulation represents a balance between access to justice and protection of the integrity of the civil-justice system. Traditional common-law doctrines of maintenance and champerty were designed to prevent improper commercialization of litigation, but modern litigation is often too expensive for parties to pursue without external finance.

The modern approach therefore generally focuses less on the mere existence of funding and more on how the funding operates—including funder control, conflicts of interest, transparency, adverse-cost exposure, settlement authority, proportionality of returns and professional independence.

The cases of Arkin, Excalibur Ventures, Chapelgate, Davey and PACCAR are particularly important in modern English law, while Ram Coomar Coondoo and Bar Council of India v. A.K. Balaji are useful for the Indian perspective. The developing regulatory trend is toward allowing legitimate funding while ensuring that the funder does not become the de facto litigant, litigation is not abused for speculative purposes, and the opposing party and court are adequately protected against procedural and financial risks.