Funding Agreement

A funding agreement is the contractual instrument between a litigation funder and the funded party — typically the claimant and/or their counsel — that governs the terms of the capital deployment, the funder's return, the parties' respective rights and obligations, and the conditions under which the agreement terminates. Key provisions include the commitment amount, draw schedule, return waterfall, settlement authority mechanics, non-interference covenants, and confidentiality terms. Funding agreements are typically governed by New York or English law in international commercial transactions. The enforceability of specific provisions — particularly return multiples following early settlement and the funder's rights on termination — is an active area of litigation in several jurisdictions.

Because return-multiple provisions following an early settlement and the funder's rights on termination are actively litigated in several jurisdictions, funders draft these clauses with more precision and more scenario planning than almost any other section of the agreement. The choice of governing law — frequently New York or English law in cross-border deals — is itself a risk-management decision, since courts under those regimes have developed more predictable precedent on enforcing funding-specific provisions than most other jurisdictions offer.