According to the Association of Litigation Funders,
“Litigation funding is where a third party provides the financial resources to enable costly litigation or arbitration cases to proceed. The litigant obtains all or part of the financing to cover its legal costs from a private commercial litigation funder, who has no direct interest in the proceedings. In return, if the case is won, the funder receives an agreed share of the proceeds of the claim. If the case is unsuccessful, the funder loses its money and nothing is owed by the litigant.”
The process of funding litigation in which one is not personally interested, with a view to reward, was previously outlawed as the crime and tort of champerty, a form of maintenance. The crime of maintenance including champerty was abolished by section 13 of the Criminal Law Act 1967, and the tort by section 14.
Litigation financing has become more creative and responsive following the stark reductions in public funding for litigation via legal aid. It should be distinguished from conditional or contingent fee arrangements whereby a lawyer acts for a client on the basis that they will be paid a fee if and when the action is successful and they can claim their costs; if not, no fee is payable. (In such a case the lawyer takes on the burden and risk of litigation rather than the third party litigation funder, though the risk is confined to the lawyer’s own fees.)
A form of litigation funding is crowdfunding, whereby the funds necessary to pursue a claim are raised by charitable donations from the public or institutional donors, rather than provided by a dedicated litigation funding entity. Crowdfunding has become popular in recent years particularly in relation to claims for judicial review, which are less likely to result in payment of compensation, but can result in declarations or other orders perceived as being for the public good and therefore worthy of public support.