Litigation Funding in England and Wales: A Board-Level Perspective

The landscape now offers a range of mechanisms that enable organisations to pursue or defend claims while managing financial exposure and optimising capital allocation. 

For boards and C-suite executives, understanding these options is crucial, not just from a legal perspective, but for strategic financial management, governance, and reputation.

Overview of Litigation Funding Mechanisms

• Self-Funding: The company pays its own legal costs directly from its balance sheet, bearing all risk and reward. This is the most ‘traditional’ form of litigation funding and tends to be based on an hourly rate model; however, businesses often want more financial certainty, and so ‘fixed’ or ‘capped’ fees may be an option when self-funding.
• Conditional Fee Agreements (“CFAs”): Solicitors agree to defer some or all of their fees, which become payable only if the case succeeds. Often known as “no win, no fee”. The fees then paid at the end of the dispute and in the event of a ‘win’ will likely be more than a business would otherwise pay if they self-fund the case as it progresses.
• Discounted Conditional Fee Agreements (“DCFAs”): A hybrid between a CFA and self-funding, where clients pay a discounted fee throughout, with an uplift if successful. The uplift will be less than in the event of a total CFA – this is therefore often an attractive option for both lawyers and businesses.
• Damages-Based Agreements (“DBAs”): Lawyers receive a percentage of any damages recovered, aligning their interests with the client’s outcome.
• Third-Party Funding: An external funder finances litigation in exchange for a share of the proceeds if the case wins. The funder takes on much of the risk.
• After-the-Event (“ATE”) Insurance: Insurance covering adverse costs if the case fails, protecting against the risk of paying the opponent’s legal costs. This is usually a requirement of any ‘alternative’ funding structure.

The Financial Exposure Curve in Litigation

Litigation can involve an uncertain financial exposure curve. 

Costs accrue as the case progresses, from investigation and pre-action, through pleadings, disclosure, trial, and possibly appeal. Early-stage costs are often lower, but exposure can ramp up significantly closer to trial. Funding mechanisms can flatten or shift this curve, transferring risk away from the corporate and improving predictability.

Litigation differs from transactional legal work because it is typically a distress purchase for businesses rather than a strategic one. As a result, organisations often place a lower perceived value on litigation, as it rarely generates revenue or profit. For many clients, legal costs can also feel opaque. This is because they may be unfamiliar with the complex procedural steps required by the courts and the law, all of which add to the time and expense involved in managing litigation. By contrast, alternative dispute resolution methods, such as mediation or arbitration, can offer more cost‑effective, quicker and often more collaborative pathways to resolving disputes.

Legal Spend: From Capex to Off-Balance Sheet Risk Transfer

Traditionally, legal spend is treated as capital expenditure (“Capex”), impacting EBITDA (Earnings Before Interest, Taxes and Amortisation) and cash flow. Litigation finance enables companies to shift this spend off the balance sheet, converting upfront cost into contingent risk. 

This transition frees capital for core business activities and can improve key financial metrics, particularly for listed companies seeking to optimise their cost of capital.

Cash Flow Forecasting and EBITDA Impact

For boards the ability to forecast cash flow accurately is paramount. 

Litigation funding mechanisms that defer or transfer costs can smooth cash flow volatility and protect EBITDA from unpredictable legal spend. 

Self-funding litigation can expose the company to sharp spikes in outflow, while risk-transfer solutions create greater certainty and allow for better financial planning.

Modelling Adverse Costs and ATE Insurance

Adverse costs – liability for the opponent’s legal fees if the case is lost – are a critical consideration. 

Boards must model potential exposure under various scenarios. ATE insurance mitigates this risk, providing coverage that can be tailored to the case’s quantum and complexity. When combined with appropriate funding, ATE insurance can reduce downside risk, though premium costs and coverage terms require careful scrutiny.

Reputation and Governance Considerations

Litigation is not just a financial risk; it can impact reputation and stakeholder confidence. 

Boards must assess the optics of funding decisions, weighing transparency, alignment of interests, and the potential for public scrutiny. 

Robust governance frameworks ensure decisions withstand external challenge and demonstrate accountability to shareholders and regulators.

Accountability and Project Management in Risk-Share Funded Cases 

Litigation funded on a risk-share basis demands disciplined project management. 

Boards should establish clear oversight mechanisms: appointing responsible executives, setting reporting protocols, and monitoring progress against agreed budgets and objectives. This ensures both accountability and effective risk management throughout the dispute lifecycle.

A Practical Framework for Board Funding Decisions

• Early Case Assessment: Evaluate merits, quantum, and strategic objectives before committing resources.
• Funding Approach Selection: Assess whether self-funding or risk-transfer (e.g., third-party, insurance) best aligns with corporate priorities and risk appetite.
• Scrutiny Factors: Examine case merits, potential damages (quantum), budget, and the capabilities of the legal team. Consider funder reputation and terms.
• Reducing Cost of Capital: Use alternative funding to shift spend off balance sheet, freeing capital and potentially reducing weighted average cost of capital (“WACC”).

Boards should document decisions, ensuring a clear audit trail and rationale for chosen funding strategies. Regular reviews allow adaptation to changing circumstances and maintain governance standards.

Conclusion

Alternative litigation funding offers powerful tools for C-suite executives and boards seeking to manage disputes strategically. 

By understanding the financial exposure curve, leveraging risk-transfer mechanisms, and adopting robust governance frameworks, organisations can pursue litigation without jeopardising financial stability or reputation. 

Structured decision-making rooted in early assessment and scrutiny enables boards to make informed choices, harness alternative funding, and drive better outcomes for shareholders and stakeholders alike.

Mark Beaumont of Annecto Legal Limited who help businesses realise the value of their commercial litigation claims comments that “resolving a dispute through the courts or arbitration can be an expensive and risky exercise, but the opportunity exists to shift some or all those risks elsewhere. For many businesses, budgeting certainty is worth any deductions from a successful outcome.”

For more information regarding Litigation Funding, please join our experts Katie Byrne and Steve Beahan, together with Mark Beaumont, at our Webinar on 18 March 2026.

Details on how to attend can be found here.