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Embracing Sustainability in Litigation Finance

September 19, 2023

Embracing Sustainability in Litigation Finance

Gian Marco Solas, Ph.D.2, is a qualified lawyer and academic, and currently serves as the Lead Expert at the BRICS Competition Law and Policy Centre and in private practice, where he advises on the application of physics models in (antitrust) litigation and market & investment modeling worldwide. With over a decade’s experience working with law firms and litigation funders, where he has inter alia built and managed the (then) largest European collective redress initiative (the Italian truck cartel initiative), Dr. Solas has published a number of papers on litigation funding and is the author of Third Party Funding: Law, Economics and Policy (Cambridge University Press, 2019) and the forthcoming ‘De Lege et Amore – Theory of Interrelation & Sustainability (Escargot, 2023) about the interrelation of the laws of physics and human laws in the economy. In his latest analysis about the litigation funding market, Dr. Solas looks at three previous historical litigation funding cycles that have similarly and quickly appeared and disappeared in specific spatio-temporal dimensions (Ancient Greece, Ancient Rome and Middle-Ages England), to then conclude – on the basis of recent and publicly available evidence – that the same ‘destiny’ appears to be repeating in the modern global cycle. This analysis on the one hand suggests to reject the non realistic view that litigation funding would be an uncorrelated asset class, which view ultimately is backfiring and making capital raises more difficult. While, on the other, to learn from its cyclicality and correlation to the economy to understand how and where to evolve. That is a fund individual choice that can be summed up, as matter of principle, to either transform into (or merge with) a proper asset manager (managing litigious and not litigious assets and / or classes thereof) or into a law firm (or special type thereof, with funds, technology, etc.) making profit both upfront and on a contingency / conditional or other basis. Such move would also potentially remove the need for discussions and implementation of sector-specific regulation of litigation funding while, from a more economic point of view, potentially allow to mitigate the risks physiologically linked to portfolios of unsecured debt in an economic downturn. In Dr. Solas’ view, it is therefore pivotal for the specialist litigation funding industry to embrace legal science and work on their “legal finance ‘beta’ strategy” to potentially move from the tail of the ending “debt cycle” to the head of the new “codified cycle”. This move should be designed to allow litigation funders to reach a realistic equilibrium between high-risk-high-reward investments with lower but steady and more secure income streams. Thus, freeing them from the evidently too tight and inefficient financial model that – together with regulatory pressure and other challenges – appear to be strangling the industry at this stage. In fact, many litigation funders are already part of larger and / or balanced conglomerates, while many others are not. All or most of them, however, seem to be still attached to the now surpassed view of a commoditized economy, that not only fails to capture the real value of legal claims, but also ‘weighs’ heavily on all asset managers in terms of compliance and legal costs. Most modern technology and legal science allows not just to analyze and factor the weight of the law in rational decision making, but also to enlarge the scope of viable legal claims and to codify any legal asset, therefore making them more economically valuable. Litigation funders’ higher familiarity and experience with the law compared to other asset managers could prove to be the distinguishing skill and make them not just sustainable – but also thrive – in the “new” codified economic reality. In addition to the books and articles mentioned above, further data for the above analysis can be found in the following forthcoming publications:
  • Physics as model for the law? Sustainability of the litigation finance business model (Journal of Law, Market and Innovation, 2024)
  • Third Party Funding in the EU. Regulatory challenges (Theoretical Inquiries on Law, co-ed. C. Poncibo’, 2024)
  • Third Party Funding in the EU (E. Elgar, co-ed. C. Poncibo’, E. D’Alessandro, 2024)
  • Third Party Funding and Sustainability considerations (E. Elgar, Research Handbook on Investment and Sustainable Development, 2024, co-ed Annie Lesperance and Dana McGrath)
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Commercial

Third‑Party Litigation Funding Gains Ground in Environmental Cases

By John Freund |

Environmental suits, increasingly seen as tools to hold governments and corporations accountable for ecosystem destruction and climate risk, often stall or never get filed because of steep costs and limited budgets.

An article in Nature highlights the U.S. commercial TPLF market as managing over US $12.4 billion in assets, showcasing the potential scale of the model for environmental justice. The core argument is that by providing funding to plaintiffs who otherwise could not afford the fight, TPLF can enable lawsuits that address pollution, habitat loss and climate change liability — aligning with broader calls to broaden access to justice in sustainability law. At the same time, the author cautions that TPLF carries risks: it may bring conflicts of interest, shift control of litigation away from claimants, or impose commercial pressures that are misaligned with public-interest goals.

For the legal funding industry this correspondence underscores important dimensions. It signals an expanding frontier: environmental litigation is becoming a viable sector for funders, not just mass-torts or commercial disputes. But it also raises governance questions: funders will need to establish best practices to ensure alignment with public interest, preserve claimant autonomy and guard against criticisms of “outsourcing” justice to commercial actors.

The article suggests that regulators, funders and civil-society actors should collaborate to craft transparent frameworks and guardrails if TPLF is to fulfill its promise in environmental realms.

Commercial

How Litigation Funding Evens the IP Playing Field

By John Freund |

Third-party litigation funding (TPLF) is becoming increasingly important for small firms, inventors and universities seeking to enforce intellectual-property rights against major corporations.

According to an article in Bloomberg, funding arrangements enable plaintiffs with viable claims—but limited resources—to access litigation and expert fees that would otherwise be prohibitive. In the complex IP space, cost and risk often preclude smaller rights holders from doing anything meaningful when a financially strong infringer acts. In effect, the commentary argues, litigation finance helps tilt the playing field back toward fairness and innovation rather than letting size alone determine outcomes.

The piece also observes that public debate has at times mis-characterised litigation funding—especially after efforts to tax funder returns—which it says “shined a spotlight on the solution” rather than creating the problem. The authors stress that the proper policy response is not punitive taxation or sweeping disclosure mandates that risk chilling investment. Instead, they advocate for targeted transparency under court supervision, combined with a recognition that accessible funding is a core part of ensuring just enforcement of IP rights.

For the legal-funding industry, the commentary underlines several take-aways: funders who back IP-rights holders serve a social as well as economic role, helping inventors and smaller entities access justice they could not otherwise afford. The industry should engage proactively in outreach: educating IP counsel and claim-holders about funding, telling success stories of smaller plaintiffs, and working with policymakers and legislators to shape rational regulation. The challenge remains to balance the benefits of funding with ethical, transparency and conflict-of-interest safeguards—as discussion in the broader TPLF context shows.

Commercial Regulatory Issues

Chartered Institute of Arbitrators Issues First Guidance on Third-Party Funding in Arbitration

By John Freund |

The Chartered Institute of Arbitrators (CIArb) has issued its first-ever Guideline on Third-Party Funding in arbitration, offering comprehensive direction on how parties, counsel, tribunals, and funders should navigate funded disputes. This milestone guidance is aimed at promoting transparency, consistency, and effective case management in arbitration where third-party funding plays a role.

The guideline addresses two primary areas. First, it outlines the third-party funding process, explaining funding structures, pricing models, and key provisions typically found in funding agreements. It provides a practical overview of the benefits and potential pitfalls of using funding in arbitration proceedings. Second, it tackles arbitration-specific case management issues, such as how funder involvement—though often portrayed as passive—can influence strategic decisions, including arbitrator selection, settlement discussions, and procedural posture. The guideline stresses the need to clearly delineate the scope of the funder's control or influence in any agreement.

CIArb also emphasizes the importance of early disclosure. The existence of funding and the identity of the funder should be revealed at the outset to avoid conflicts of interest and challenges to tribunal impartiality. On confidentiality, the guidance urges parties to reconcile the typically private nature of arbitration with the disclosure obligations inherent in funded cases.

Additionally, the guideline explores three critical cost issues: whether funders may cover arbitrator deposits, the increasing prevalence of security for costs orders targeting funders, and the evolving question of whether tribunals should allow recovery of funding costs.