Does litigation funding replace the lawyer's contingency fee?

Sometimes, but not necessarily. A funder can pay the lawyers by the hour, removing the need for a contingency fee; the funder's return then replaces the lawyer's share of the upside. Or the lawyers can work on a full or partial contingency while a funder pays expenses and other costs, in which case both take a share of the recovery. Burford's guide says law firms use funding to offer clients alternatives to hourly fees and to time cash flows from contingent work.

How do the two compare in cost to the claimant?

It depends on the structure and the recovery. In the worked example below, a $20 million settlement leaves the claimant $8.9 million with a one-third contingency fee plus a funder covering expenses, and $10.5 million with a funder paying discounted hourly fees plus a 10% success fee. The cheaper structure at one recovery can be the more expensive at another, so model several outcomes.

Are contingency fees capped?

In some places. In England and Wales, a damages-based agreement, the local form of contingency fee, may not provide for a payment above 25% of certain damages in personal injury claims or 50% of the sums recovered in other claims, under regulation 4 of the Damages-Based Agreements Regulations 2013, at first instance. In the US, contingency fees are governed by state professional conduct rules and, in some cases, court approval or statutory limits.

Can a funder also take a percentage of the recovery?

Yes, which is why the UK PACCAR decision mattered. In July 2023 the UK Supreme Court held that funding agreements entitling funders to payments 'based on the amount of damages recovered' are damages-based agreements that must comply with the 2013 regulations, per Burford's 2025 10-K; the UK government announced in December 2025 that it intends to reverse the decision. A return set as a multiple of capital is not tied to the damages in the same way.

Who has priority, the lawyer or the funder?

Whatever the fee agreement and funding agreement say together. Lawyers' contingency fees are often paid from the recovery first, because the fee agreement predates the funding; funders may require counsel's deferred fees to rank behind their capital. Conflicting priorities between the two agreements are a diligence point.

Why does the lawyer's fee structure matter to a funder?

It sets counsel's incentives. A lawyer on contingency shares the funder's interest in a large recovery; a lawyer on full hourly rates is paid whatever happens. Burford's 10-K notes its financing 'may also rely, in part, on the economic arrangements with the originally engaged lawyers,' and that those arrangements can be lost if the client replaces counsel.

Contingency Fees vs Funding Returns

Litigation Finance & Legal Claims

Definition

A contingency fee is a lawyer's fee paid only if the case succeeds, usually as a percentage of the recovery. A funding return is the capital provider's payment for financing the case, set by the funding agreement as a multiple, a percentage or a rate. They compensate different things, legal work and capital at risk, and a funded case can carry both. Burford's 10-K says legal finance lets law firms 'obtain cash to operate their businesses and pay the salaries of their lawyers even when they have taken a case on a contingent fee or alternative fee basis.'

Why it matters

Contingency fees and funding returns both come out of the same recovery, so a claimant who uses both pays twice for risk-sharing: once to the lawyers for working without guaranteed pay, and once to the funder for capital. That can still be the right choice, because funding can pay for experts and costs a contingency firm will not carry, or let a firm take a case it could not afford. For an investor, the lawyers' fee structure is a signal of alignment and a claim on proceeds that can rank ahead of the funder. Ask how counsel is paid on each funded case, and what share of a realistic recovery goes to lawyers and funders combined.

Common misconceptions

•Funding does not always replace a contingency fee, because many funded cases still pay counsel a contingency or success fee.
•A contingency fee is not a funding return, because one pays for legal work and the other for capital at risk.
•Two risk-takers do not share one slice, because the lawyers' fee and the funder's return each come out of the recovery.
•Contingency percentages are not unlimited everywhere, because England and Wales cap damages-based agreements at 25% or 50%.
•Counsel on hourly rates is not neutral, because a lawyer paid regardless of the result has less at stake in the outcome than the funder.

Technical details

Worked example (illustrative): $20 million settlement, three structures

Pure contingency, 33%: counsel $6.6 million; claimant $13.4 million; counsel carries all the risk, expenses aside.

Contingency plus a funder for $1.5 million of expenses at 3.0x: counsel $6.6 million, funder $4.5 million, claimant $8.9 million.

Funder pays $3.0 million of discounted hourly fees at 2.5x, plus a 10% success fee to counsel: funder $7.5 million, counsel $2.0 million, claimant $10.5 million.

At a $6 million settlement, the third structure leaves the claimant nothing ($7.5 million + $0.6 million exceeds $6.0 million) while the pure contingency leaves it $4.0 million.

What each party is paid for

Contingency fee: legal work done at the lawyer's risk.

Success fee: an uplift on discounted fees if the case wins.

Funding return: capital at risk, time and the funder's diligence.

Insurance premium: transfer of adverse costs risk.

The claimant keeps what is left after all of them.

What AltStreet's reviews and filings show

Burford 2025 10-K: law firms use legal finance to carry contingent or alternative fee work and to compete for it; its financing can rely on 'the economic arrangements with the originally engaged lawyers.'

Damages-Based Agreements Regulations 2013, regulation 4: caps of 25% (personal injury, specified damages) and 50% (other claims), first instance only.

Burford 2025 10-K: UK Supreme Court PACCAR decision (July 2023) treating recovery-based funder returns as damages-based agreements; reversal announced December 2025.

Zerify 8-K EX-10.1 (August 2024): proceeds paid through outside counsel's account under an irrevocable pay proceeds agreement.

Questions about counsel and funder economics

How is counsel paid: hourly, discounted plus success fee, partial or full contingency?

Do counsel's fees rank ahead of or behind the funder?

What share of a realistic recovery goes to lawyers and funders combined?

What happens to counsel's economics if the client changes firms?

Is the funder's return a percentage that local rules might treat as a contingency fee?

How investors apply the term

Investors usually apply this term by tying the definition back to the controlling documents and then asking which cash flows, rights, restrictions, or valuation assumptions it changes. A useful review looks at the term alongside fees, leverage, liquidity, reporting frequency, and manager discretion rather than treating it as a standalone concept.

The practical diligence test is simple: identify who benefits if the assumption is wrong, who has control when conditions change, and what evidence the investor receives after closing. Terms that cannot be reconciled to documents, cash movements, and monitoring data should be treated as marketing shorthand until proven otherwise.

Frequently asked questions

Does litigation funding replace the lawyer's contingency fee?: Sometimes, but not necessarily. A funder can pay the lawyers by the hour, removing the need for a contingency fee; the funder's return then replaces the lawyer's share of the upside. Or the lawyers can work on a full or partial contingency while a funder pays expenses and other costs, in which case both take a share of the recovery. Burford's guide says law firms use funding to offer clients alternatives to hourly fees and to time cash flows from contingent work.
How do the two compare in cost to the claimant?: It depends on the structure and the recovery. In the worked example below, a $20 million settlement leaves the claimant $8.9 million with a one-third contingency fee plus a funder covering expenses, and $10.5 million with a funder paying discounted hourly fees plus a 10% success fee. The cheaper structure at one recovery can be the more expensive at another, so model several outcomes.
Are contingency fees capped?: In some places. In England and Wales, a damages-based agreement, the local form of contingency fee, may not provide for a payment above 25% of certain damages in personal injury claims or 50% of the sums recovered in other claims, under regulation 4 of the Damages-Based Agreements Regulations 2013, at first instance. In the US, contingency fees are governed by state professional conduct rules and, in some cases, court approval or statutory limits.
Can a funder also take a percentage of the recovery?: Yes, which is why the UK PACCAR decision mattered. In July 2023 the UK Supreme Court held that funding agreements entitling funders to payments 'based on the amount of damages recovered' are damages-based agreements that must comply with the 2013 regulations, per Burford's 2025 10-K; the UK government announced in December 2025 that it intends to reverse the decision. A return set as a multiple of capital is not tied to the damages in the same way.
Who has priority, the lawyer or the funder?: Whatever the fee agreement and funding agreement say together. Lawyers' contingency fees are often paid from the recovery first, because the fee agreement predates the funding; funders may require counsel's deferred fees to rank behind their capital. Conflicting priorities between the two agreements are a diligence point.
Why does the lawyer's fee structure matter to a funder?: It sets counsel's incentives. A lawyer on contingency shares the funder's interest in a large recovery; a lawyer on full hourly rates is paid whatever happens. Burford's 10-K notes its financing 'may also rely, in part, on the economic arrangements with the originally engaged lawyers,' and that those arrangements can be lost if the client replaces counsel.