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Out of the Shadows: The Mainstreaming of Litigation Finance

April 22, 2021

Out of the Shadows: The Mainstreaming of Litigation Finance

Litigation funders provide non-recourse funding to litigants, in order to enable them to pursue a meritorious case they couldn’t otherwise afford. It’s a straightforward process with a net societal gain of increasing access to justice. So why aren’t more people making use of it? The CLS Blue Sky Blog details that a newly-published article in the Vanderbilt Law Review, The Shadows of Litigation Finance, explores how Litigation Finance can overcome barriers that have been placed in its path. In the piece, authors Suneal Bedi (Professor at Indiana University and Maurer School of Law) and Willian C Marra (Investment Manager at Validity Finance), examine the awareness problem that plagues the industry, and lay out a scholarly framework with which to evaluate the full impact of litigation funding pre-trial, during the case, and after a case is resolved. Third-party legal finance is an enormous step forward in terms of social justice. Until this industry came to be, those who lacked financial means often lacked any way to seek justice when wronged—particularly by a large business, utility, or government. Litigation funding allows average citizens to pursue valid cases while preventing frivolous claims from clogging court dockets. After all, no funder wants to invest in a frivolous case that’s unlikely to be profitable. One of the interesting points made in the article is that there’s no specific framework to measure the success and benefits of non-recourse legal funding, hence it is difficult to counter the assertion that the use of litigation funding necessitates increased regulation. The pre-claim and post-claim impact of litigation funding are some of the key measurements explored by Marra and Bedi. By examining how funding changes the behavior of litigants at these stages, the authors hope to illustrate the heretofore unseen benefits of litigation funding—such as increased compliance and more equitable bargaining.

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Commercial

Litigation Funding Founder Reflects on Building a New Platform

By John Freund |

A new interview offers a candid look at how litigation funding startups are being shaped by founders with deep experience inside the legal system. Speaking from the perspective of a former practicing litigator, Lauren Harrison, founder of Signal Peak Partners, describes how time spent in BigLaw provided a practical foundation for launching and operating a litigation finance business.

An article in Above the Law explains that Harrison views litigation funding as a natural extension of legal advocacy, rather than a purely financial exercise. Having worked closely with clients and trial teams, she argues that understanding litigation pressure points, timelines, and decision making dynamics is critical when evaluating cases for investment. This background allows funders to assess risk more realistically and communicate more effectively with law firms and claimholders.

The interview also touches on the operational realities of starting a litigation funding company from the ground up. Harrison discusses early challenges such as building trust in a competitive market, educating lawyers about non-recourse funding structures, and developing underwriting processes that balance speed with diligence. Transparency around pricing and alignment of incentives emerge as recurring themes, with Harrison emphasizing that long-term relationships matter more than short-term returns.

Another key takeaway is the importance of team composition. While legal expertise is essential, Harrison notes that successful platforms also require strong financial, operational, and compliance capabilities. Blending these skill sets, particularly at an early stage, is presented as one of the more difficult but necessary steps in scaling a sustainable funding business.

Commercial Regulatory Issues

Australian High Court Limits Recovery of Litigation Funding Costs

By John Freund |

The High Court of Australia has delivered a significant decision clarifying the limits of recoverable damages in funded litigation, confirming that claimants cannot recover litigation funding commissions or fees as compensable loss, even where those costs materially reduce the net recovery.

Ashurst reports that the High Court rejected arguments that litigation funding costs should be treated as damages flowing from a defendant’s wrongdoing. The ruling arose from a shareholder class action in which claimants sought to recover the funding commission deducted from their settlement proceeds, contending that the costs were a foreseeable consequence of the underlying misconduct. The court disagreed, holding that litigation funding expenses are properly characterised as the price paid to pursue litigation, rather than loss caused by the defendant.

In reaching its decision, the High Court emphasised the distinction between harm suffered as a result of wrongful conduct and the commercial arrangements a claimant enters into to enforce their rights. While acknowledging that litigation funding is now a common and often necessary feature of large-scale litigation, the court concluded that this reality does not convert funding costs into recoverable damages. Allowing such recovery, the court reasoned, would represent an expansion of damages principles beyond established limits.

The decision provides welcome clarity for defendants facing funded claims, while reinforcing long-standing principles of Australian damages law. At the same time, it confirms that litigation funding costs remain a matter to be borne out of recoveries, subject to court approval regimes and regulatory oversight rather than being shifted onto defendants through damages awards.

Case Developments Commercial

Janus Henderson Affiliates Lose Early Bid in Litigation Finance Dispute

By John Freund |

Janus Henderson Group affiliates have suffered an early procedural setback in a closely watched litigation finance dispute that underscores the internal tensions that can arise within funder-backed investment structures and joint ventures.

Bloomberg Law reports that a Delaware Chancery Court judge has refused to dismiss claims brought by Calumet Capital Partners against several entities linked to Janus Henderson. The ruling allows the case to proceed into discovery, rejecting arguments that the complaint failed to state viable claims. Calumet alleges that the defendants engaged in a concerted effort to undermine a litigation finance joint venture in order to force a buyout of Calumet’s interests on unfavorable terms.

According to the complaint, the dispute centers on governance and control issues within a litigation finance vehicle that was designed to deploy capital into funded legal claims. Calumet contends that Janus Henderson affiliated entities systematically blocked proposed funding deals, interfered with relationships, and restricted the venture’s ability to operate as intended. These actions, Calumet claims, were aimed at depressing the value of its stake and pressuring it into an exit at a steep discount.

The defendants moved to dismiss the case, arguing that their actions were contractually permitted and that Calumet’s allegations were insufficient to support claims such as breach of contract and tortious interference. The court disagreed at this stage, finding that Calumet had plausibly alleged misconduct that warrants further factual development. While the ruling does not determine the merits of the case, it keeps alive serious allegations about how litigation finance partnerships are managed and unwound when commercial interests diverge.