In litigation finance, fairness is not measured by how a transaction looks when capital is scarce. It is measured by whether its economics remain defensible once value is realised.
Litigation finance is negotiated in the shadow of unequal time.
One party has capital, diversification and the ability to decline. The other may have a single legal asset, mounting costs and a defendant capable of extending the dispute. Even a sophisticated commercial claimant can find that its legal position is stronger than its financial capacity to sustain it.
That asymmetry is not a defect in the market. It is one reason the market exists.
Capital absorbs risk, extends the claimant’s runway and creates options that may otherwise disappear. Non-recourse capital may be committed for years, exposed to total loss and repaid only after litigation, appeal or enforcement. It is entitled to a return commensurate with those risks.
But scarcity does more than price risk.
It confers leverage.
What the stronger party does with that leverage is not an ethical footnote to the transaction. It is part of the transaction itself.
The usual language of negotiation can obscure this. Claimants are encouraged to seek the cheapest capital. Funders are expected to secure the strongest possible economics. Advisers are judged by whether a transaction closes.
Each measure is incomplete.
Cheap capital that is unable to fund the matter through trial, appeal or enforcement may prove extraordinarily expensive. A lower headline return can conceal intrusive control rights, inadequate reserves or a structure that deteriorates sharply with time. Conversely, a high return may be entirely rational where the capital is genuinely at risk, the duration is uncertain and the funder is assuming obligations others were unwilling to carry.
The best transaction is therefore not necessarily the one with the lowest percentage or the smallest multiple. Nor is it the one that extracts the maximum available value for capital.
It is the one in which risk, return, control and residual value have been allocated coherently.
Fairness does not require symmetry. The parties are not making equivalent contributions and should not be expected to receive equivalent economics. A funder may properly receive priority, a multiple of invested capital, a share of proceeds or some combination of them. A claimant may surrender a substantial portion of a successful recovery in exchange for transferring the risk of losing altogether.
A fair agreement does not eliminate asymmetry.
It disciplines it.
This distinction matters because a litigation funding agreement is not merely a pricing document. It allocates power over time.
The headline return is only one part of the bargain. The economic result may also be shaped by how invested capital is defined, whether the return compounds, how long it continues to accrue, what happens when the budget changes, whether additional capital receives priority, who controls settlement decisions, what rights survive termination and how proceeds move through the waterfall.
A transaction that appears moderate at inception can become severe through duration. Another may appear expensive but remain commercially fair because the funder is committed through adverse developments, appeals and a difficult recovery process.
Price without architecture tells us very little.
Nor is signature alone a complete answer.
Independent legal advice, informed consent and contractual certainty are essential. They do not, however, remove the commercial reality in which the agreement was negotiated. A claimant facing an expiring limitation period, an imminent trial or exhausted working capital may understand every clause and still possess little practical bargaining power.
That does not invalidate the bargain. It elevates the responsibility of those designing it.
There is nothing improper about holding market power. There is nothing improper about being paid well for assuming risk. The more difficult question is whether temporary vulnerability has been used to price the risk being taken, or to capture value that bears little relationship to it.
The distinction is rarely visible when the agreement is signed.
It becomes visible when the case succeeds.
At that point, a contingent return becomes money. A percentage that appeared abstract becomes a transfer of realised value. A multiple that seemed commercially remote begins to operate against an actual recovery. The claimant may look back at the agreement through the lens of success rather than through the uncertainty that existed when the capital was committed.
That hindsight must be treated carefully.
A successful outcome does not retrospectively make the funding overpriced. Non-recourse capital must be assessed at the time of investment, across the risks actually assumed and not only through the winning matters that repay it. Funders cannot build sustainable portfolios if every successful investment is repriced after the event while losses remain theirs alone.
But the opposite proposition is also incomplete.
The fact that an agreement is enforceable, or that a funder has suffered losses elsewhere, does not make every return generated by it beyond scrutiny. Portfolio economics cannot justify any result at the individual transaction level. Legal validity is a minimum standard, not the final measure of commercial quality.
The more demanding test is whether the allocation could have been explained plainly at the beginning and can still be defended at the end.
Could the return be justified without relying on the claimant’s urgency?
Could the control rights be explained as necessary to protect capital rather than merely useful to possess?
Could the waterfall be understood without a model built by the party that drafted it?
Would the same terms appear rational if the outcome were larger, later or achieved through settlement rather than judgment?
A sound transaction should withstand those questions before the answer is known.
It should also withstand them after the result is known.
This does not mean every funding agreement should be made public. Claimant privacy, litigation strategy and commercial confidentiality are legitimate concerns. A sophisticated market should not confuse transparency with indiscriminate disclosure.
But confidentiality and opacity are not the same thing.
The parties should be able to understand how the economics work, explain why the rights granted are necessary and identify how the structure behaves under realistic outcomes. Terms should not become defensible only after layers of drafting, technical definitions or improbable assumptions have been stripped away.
A transaction should not depend for its legitimacy on no one examining it closely.
The adviser has a particular responsibility here.
An adviser paid when capital is secured can easily begin to treat execution as the objective. But a signed agreement is not proof of a well-structured transaction. It proves only that the parties reached agreement at a particular moment, under a particular set of pressures.
The real work is more exacting.
It is to match the capital to the legal asset. To test the economics across success, failure, delay and enforcement. To distinguish rights that protect the investment from rights that merely enlarge the investor’s advantage. To ensure that the funder can earn a return sufficient to justify the risk without leaving the claimant with an outcome that defeats the purpose of pursuing the claim.
That does not mean splitting every difference.
Sometimes the fair result is a higher return because the risk is real and the capital is scarce. Sometimes it is a lower return because the matter has been substantially de-risked. Sometimes it requires a cap, a staged return or different economics after a particular date. Sometimes it means choosing a more expensive funder because its capital certainty, conduct and ability to remain invested are worth more than a lower headline price.
And sometimes the correct outcome is no transaction at all.
There are structures that provide capital but transfer too much of the underlying value. There are also claims whose economics cannot support professional funding on terms fair to both claimant and investor. Declining such a transaction is not a failure of intermediation. It is evidence that the asset and the capital do not fit.
Litigation finance increasingly seeks recognition as institutional capital. That ambition demands more than sophisticated underwriting models and access to larger pools of money.
Institutional quality is also revealed by conduct under advantage.
The strongest capital providers do not need to extract every concession available to them. They understand that contractual power and economic legitimacy are not interchangeable. They price risk firmly, document it clearly and leave enough value in the transaction for the claimant to remain aligned with the recovery.
The strongest claimants and advisers recognise the other side of the equation. Fairness cannot mean depriving capital of the return required to assume non-recourse risk. A funder that cannot earn an adequate return will not remain a reliable source of capital. Unsustainable claimant-friendly economics are no more durable than extractive investor economics.
A high-quality transaction must work for both sides.
Not equally.
But rationally.
The agreement will eventually become the permanent record of how the parties used the positions they held. Long after the initial negotiation has been forgotten, its terms will show what was prioritised, what was protected and where the value ultimately went.
Those terms should not become harder to defend as the investment becomes more profitable.
Capital is entitled to be rewarded for the risk it carries. Claimants are entitled to retain a meaningful share of the value they created and endured the dispute to recover. Advisers are responsible for ensuring that the bridge between those positions is not merely executable, but durable.
That is the standard imposed by a position of strength.
Not restraint for its own sake.
Not generosity at the expense of commercial discipline.
The ability to agree terms that protect capital, respect the legal asset and require neither concealment nor apology when the outcome arrives.
The terms must survive the loss.
They must survive the delay.
Above all, they must survive the success.