An update on case law developments affecting commercial legal finance


As use of legal finance continues to grow, case law and court decisions reflect its growing acceptance.

It is now rare to find a law firm partner or an in-house lawyer who is not aware of the existence of legal finance. In the early days of the industry, “third party litigation funding” was understood as a niche tool used by impecunious clients, but legal finance is fast becoming just another corporate finance tool in the arsenal of top law firms and businesses.

Consistent with this, case law and recent judicial rulings demonstrate growing acceptance of and support for commercial legal finance. As the industry leader with a global business perspective, Burford is uniquely positioned to educate lawyers about industry developments and relevant recent matters. To that end, we summarize below some of the most relevant recent case law relating to commercial legal finance from the past year.

Australia - LCM Funding Pty Ltd v Stanwell Corporation Limited:  Legal finance arrangements are not managed investment schemes

In 2022, in LCM Funding Pty Ltd v. Stanwell Corporation Limited, the full court of the Federal Court of Australia rejected regulating class action legal finance arrangements as managed investment schemes. It unanimously held that a prior full court decision in which a majority had reached the opposite conclusion—Brookfield Multiplex Ltd v. International Litigation Funding Partners Pte Ltd (2009)—was “plainly wrong”.

This holding effectively removes the basis for applying managed investment scheme obligations, such as the requirement to obtain Australian Financial Services Licenses, on funders of Australian class actions. 

UK - Candey Limited v Tonstate Group Limited: DBAs available only to claimants and counterclaimants, not to defendants

In Candey Limited v. Tonstate Group Limited (2022), the English Court of Appeal ruled that defendant-side damages based agreements (DBAs) are not enforceable where the solicitor seeks to recover his or her entitlement from assets retained by the defendant in litigation. This decision confirms that defendants cannot enter into DBAs unless they make a counterclaim such that if they win, they obtain “a financial benefit by making a recovery from the claimant”, which provides some downside protection. Yet the decision has a limited impact on legal finance because funders rarely enter into defendant-side funding arrangements and, critically, legal finance agreements are not considered to be DBAs. (This question, however, is presently being appealed to the Supreme Court.)

UK - ECU v HSBC: Funder with dominant financial interest in a claim can be liable for entirety of adverse costs

In 2022, the English High Court ruled in ECU v. HSBC that legal finance provider Therium should be jointly and severally liable for indemnity costs after it funded an unsuccessful claim brought by currency debt management firm ECU against HSBC. Therium was liable for costs irrespective of the involvement other funders since (1) Therium had “by far and away the dominant financial interest” in the outcome of the proceedings and “effectively controlled” them through the legal finance agreement, and, (2) HSBC was given no choice but to incur costs in defending the claim, and it would not be fair to make recovery of its costs dependent on having to pursue numerous entities.

This judgment makes clear that legal finance providers should not expect the presence of other sources of funding to reduce their potential exposure to liability for costs where they have the dominant financial interest.

US - Court orders on Motions in Limine in patent cases: Commercial legal finance-related documents are protected from discovery and the presence of legal finance should not be put in front of a jury

In December 2022, Chief Judge Rodney Gilstrap of the Eastern District of Texas, a key jurisdiction for patent litigation, issued a sua sponte order deciding 23 common motions in limine—a series of default rules about topics the parties are precluded from raising at trial without prior leave of the court, including “evidence, testimony, or argument regarding funding of the litigation”. Then in April 2023, Western District of Texas Judge Albright issued a similar order on motions in limine—again sua sponte, and again precluding either party from introducing “evidence, testimony, or argument regarding funding of the litigation”.

These two recent orders reaffirm the well-established understanding that documents created in connection with legal finance are protected from discovery. Both these judges oversee large patent dockets and are saying that, at least in their cases, the issue of legal finance is not one that should be put in front of a jury. The judges have used the broad discretion granted to them under Federal Rule of Evidence 403 to exclude evidence where the probative value is outweighed by the risk of unfair prejudice, misleading the jury, or wasting time. These orders implicitly acknowledge that legal finance is a non-issue and echo previous decisions such as Worldview v. Woodrow (N.Y. App. Div. 2021) where the New York Appellate Division declined to force disclosure of legal finance on the ground that the details of the funding agreement had no bearing on any particular claim or defense.

About the author

Andrew Cohen


+1 212 235 6820

Andrew Cohen is a Director with responsibility for assessing and underwriting legal risk as well as for monitoring policy and regulatory issues in the legal finance industry. Prior to joining Burford, he was a litigator at Debevoise & Plimpton, where he specialized in litigation and regulatory matters involving financial institutions and complex financial products, as well as IP matters relating to trademark disputes.