You have a strong commercial claim — a substantial debt, a breach of contract, a shareholder dispute that could be worth hundreds of thousands of dollars. But the cost of taking it to court is prohibitive. Lawyers cost money. Disbursements cost money. Years of litigation cost money. What can you do?
One option growing rapidly in Australia is litigation funding — where a third party (a litigation funder) agrees to pay your legal costs in exchange for a share of any proceeds recovered. If you win, the funder takes a percentage. If you lose, you owe nothing.
This guide explains how litigation funding works in Australia, who qualifies, what it costs, and the important risks Queensland businesses and individuals need to understand before signing a funding agreement.
This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.
What Is Litigation Funding?
Litigation funding (also called third-party funding or legal financing) is an arrangement where a commercial entity — a litigation funder — agrees to finance all or part of the legal costs of a dispute in exchange for a return from any proceeds recovered.
The funded party typically pays nothing upfront. If the claim succeeds, the funder recovers its outlay plus a percentage of the proceeds — commonly between 20% and 40%, depending on the risk profile of the case. If the claim fails, the funded party owes nothing to the funder (though adverse costs orders from the opposing party remain a live risk).
Litigation funding is used across a range of dispute types:
- Large commercial contract disputes
- Shareholder oppression claims
- Insolvency recoveries (including unfair preference and insolvent trading claims brought by liquidators)
- Class actions
- Intellectual property disputes
- Professional negligence claims
Is Litigation Funding Legal in Australia?
Yes. Litigation funding is lawful in Australia. The High Court confirmed this in Campbells Cash and Carry Pty Limited v Fostif Pty Ltd [2006] HCA 41, which rejected the ancient common law doctrines of champerty and maintenance as being contrary to public policy in the Australian commercial context.
Australia now has one of the most developed litigation funding markets in the world. The sector is home to several major domestic and international funders including IMF Bentham (now Omni Bridgeway), Therium, Harbour Litigation Funding, and LCM Litigation Fund.
Litigation funders operating in Australia are not currently required to hold an Australian Financial Services Licence (AFSL), following the Federal Government’s decision in 2022 to disallow regulations that would have imposed licensing requirements. However, class action funders remain subject to managed investment scheme obligations in certain circumstances, and the regulatory landscape continues to evolve.
How Does Litigation Funding Work?
The process typically follows these steps:
1. Initial Assessment
You (or your lawyers) approach a litigation funder with a summary of your claim. The funder will assess the merits, likely recovery, and economics of the case. Most funders require a strong prospect of success — typically better than 60-70% — and a minimum claim size that justifies the investment.
2. Due Diligence
If the funder is interested, it will conduct detailed due diligence including reviewing key documents, assessing the defendant’s ability to pay any judgment, and analysing legal strategy with independent counsel.
3. Funding Agreement
If the funder proceeds, the parties enter a funding agreement setting out the funder’s return (either a multiple of their investment, a percentage of proceeds, or a hybrid), any conditions on settlement, control of the litigation, and what happens on an adverse costs order.
4. Litigation Proceeds
The funder pays the costs of running the claim (legal fees, disbursements, expert witnesses, court fees). They may also fund the premium for an after-the-event (ATE) insurance policy, which provides cover for adverse costs if the claim fails.
5. Resolution
On a successful judgment or settlement, the proceeds are distributed: adverse costs and disbursements first, then the funder’s return, then the balance to the funded party. On an unsuccessful outcome, the funded party generally owes nothing to the funder — but any adverse costs order from the opposing party remains a risk (partially mitigated by ATE insurance).
Who Qualifies for Litigation Funding?
Litigation funding is not available for every case. Funders are commercial investors — they back cases where the return justifies the risk. The key criteria are:
Minimum Claim Size
Most commercial litigation funders in Australia require a minimum claim value of $500,000 to $2 million. Below this threshold, the economics don’t work for the funder — legal costs would consume too great a proportion of any recovery. Some funders specialise in smaller commercial claims; others focus exclusively on large-scale class actions or insolvency recoveries.
Merits
The claim must have strong legal merits. Funders require favourable legal advice (usually at least 60% prospects of success, often higher) and will instruct their own independent legal review before committing.
Defendant Solvency
There is no point funding a claim against a defendant who cannot pay a judgment. The funder will assess the financial capacity of the defendant to satisfy a realistic award of damages before proceeding. This is particularly important in commercial disputes where the defendant may be a small company or individual.
Case Control
Funders will want contractual oversight of key litigation decisions, particularly settlement. Most funding agreements require the funded party to act on reasonable settlement advice and prohibit unilateral rejection of commercially reasonable offers. The tension between funder interests and client interests is one of the key risks to understand.
What Does Litigation Funding Cost?
Litigation funders charge either:
- A percentage of proceeds recovered — commonly 20–40% of the final settlement or judgment amount
- A multiple of investment — for example, 3–4 times the capital deployed by the funder
- A hybrid — the higher of a percentage or a multiple
The specific return demanded depends on the risk profile of the case. Higher-risk claims (complex facts, uncertain liability, lengthy litigation) attract higher funder returns. Simple, high-value claims with clear liability attract lower percentages.
It is important to model the economics before agreeing to funding. A 35% return to the funder on a $2 million settlement means $700,000 goes to the funder. If that $2 million settlement also reflects a discount from a realistic $5 million claim, the funded party may feel they have left value on the table.
Litigation Funding in Insolvency Proceedings
Litigation funding has become an essential tool in Australian insolvency practice. Liquidators regularly lack the assets to fund voidable transaction claims — unfair preferences, uncommercial transactions, and insolvent trading — against former directors or related parties.
Third-party funders provide the capital for liquidators to pursue these recoveries, taking a return from any proceeds received. This benefits creditors, who might otherwise receive nothing, and allows the insolvency regime to fulfil its deterrence function.
If your company has entered liquidation and you believe recoveries are possible, your liquidator may have already arranged (or be considering) litigation funding. As a creditor, it is worth asking your liquidator directly about funding arrangements and the proposed return structure.
Learn more about the insolvency recovery process in our Insolvency Lawyers Brisbane guide.
Key Risks of Litigation Funding
Litigation funding is a useful tool, but it comes with risks that must be understood before entering any agreement:
Loss of Control
Most funding agreements give the funder a say — sometimes a veto — over settlement. If the funder believes an offer is reasonable and the funded party disagrees, the agreement may allow the funder to withdraw funding, leaving the funded party to choose between accepting the settlement or continuing the litigation at their own cost.
Adverse Costs Risk
Even with a funder, an unsuccessful claimant may face an adverse costs order requiring payment of the opposing party’s legal costs. ATE insurance can mitigate this, but premiums are substantial and coverage is not unlimited.
Funder Insolvency
A funder that becomes insolvent mid-litigation is a real (if rare) risk. Before signing a funding agreement, check the financial standing of the funder and whether any escrow or security arrangements protect you if the funder cannot continue.
Commercial Conflicts
A funder’s commercial interests are not always aligned with your interests. A funder may prefer a quick settlement (to crystallise a return) rather than holding out for full value. Understanding this tension is critical before agreeing to settlement provisions in a funding agreement.
Alternatives to Litigation Funding
Before approaching a litigation funder, consider whether other arrangements might better suit your needs:
- Conditional fee arrangements (CFAs): Also called no-win no-fee arrangements, CFAs allow solicitors to defer or discount their fees subject to success. Rules around CFAs in Queensland are set by the Legal Profession Act 2007 (Qld). Not all firms offer this model for commercial disputes.
- Damages-based agreements (DBAs): Available in limited circumstances, DBAs allow a lawyer to take a share of any proceeds rather than charging hourly rates.
- Staged litigation: Rather than committing to a full trial, structuring proceedings in stages (demand → mediation → proceedings) can contain costs and create pressure points for settlement.
- Portfolio funding: Where a single funder backs a portfolio of a law firm’s cases across multiple clients, enabling broader access to funding than case-by-case arrangements.
Speak with a commercial litigation lawyer before deciding which cost model suits your situation. Our team at Boss Lawyers regularly advises clients on commercial dispute strategy, including how to structure the economics of a claim. Learn more at our Commercial Litigation Lawyers Brisbane page.
Frequently Asked Questions
What is the minimum claim size for litigation funding in Australia?
Most commercial litigation funders in Australia require a minimum claim value of $500,000 to $2 million. Some funders specialise in smaller commercial claims. Below approximately $500,000, the legal costs as a proportion of any recovery generally make third-party funding uneconomic for the funder.
Can I use litigation funding for a shareholder dispute in Queensland?
Yes. Shareholder oppression claims, buy-out proceedings, and claims involving significant share value disputes are fundable if the expected recovery justifies the economics. See our guide to Shareholder Dispute Lawyers Brisbane for more on the substantive law.
Does litigation funding require court approval?
Not in most commercial cases. Court approval of funding arrangements is generally only required in class actions (where the court supervises the funding agreement as part of the common fund order mechanism) and certain insolvency proceedings where the court is asked to bless a funding arrangement. Ordinary commercial disputes between parties do not require court approval of any funding arrangement.
What happens if my funded claim is unsuccessful?
If your claim fails, you generally owe nothing to the litigation funder under the terms of the funding agreement. However, a court may order you to pay the successful defendant’s legal costs (adverse costs). ATE insurance is often arranged alongside litigation funding to cover this risk, though premiums are substantial.
Can a litigation funder make me settle against my wishes?
Most funding agreements give the funder a contractual right to have input into settlement decisions. Some agreements allow the funder to withdraw funding if you reject a settlement they consider reasonable. Before signing, understand exactly what rights the funder has over settlement — and ensure your independent legal adviser reviews the funding agreement before you execute it.
How Boss Lawyers Can Help
Boss Lawyers acts for commercial clients in complex litigation across Queensland. We understand the economics of litigation — how to assess funding options, structure a claim for maximum recovery, and advise on the interplay between litigation strategy and cost.
If you have a substantial commercial claim but are concerned about cost, speak with our team about your options. We can provide an honest assessment of whether litigation funding is appropriate for your situation — and if so, how to approach a funder.
Call us on 1300 267 711 or complete the contact form on our Commercial Litigation Brisbane page.
