Australia is the birthplace of numerous well-known funding businesses that have expanded their operations domestically and globally. In the last 20 years, Australia has become one of the world’s most sophisticated third-party litigation funding markets. At the turn of the century, litigation funding was primarily used by insolvency practitioners to pursue insolvency-related legal claims, but since the early 2000s, third-party litigation funding has expanded into a far broader range of civil and commercial disputes and arbitrations. In the 2025–2026 financial year, the Australian litigation funding market had an estimated revenue of AUD123.6 million.

Prior to 2006, encouraging litigation and funding another’s claim for profit were prohibited in Australia by the common law doctrines of maintenance and champerty. These doctrines prevented the courts from being used for speculative business ventures. Maintenance and champerty were the foundation for numerous challenges to the legitimacy of litigation funding before being progressively abolished as crimes and torts in most Australian states.

In the run-up to the landmark High Court decision in Campbells Cash and Carry Pty Ltd v Fostif Pty Limited (Fostif) (2006) 229 CLR 386; [2006] HCA 41, there had been numerous challenges to funding agreements. In a pivotal development for litigation funding under Australian law, the High Court in Fostif determined that third-party litigation funding (of a class action) was not an abuse of process or contrary to public policy. The court stated that notions of maintenance and champerty could no longer be used to challenge proceedings simply because they were funded by a litigation funder.

Following Fostif, litigation funding has gradually become a staple part of the Australian dispute resolution landscape, playing an important role in providing greater access to the courts and bringing an equality of arms between claimants, often against well-resourced respondents, especially in the context of class actions. Even so, courts may still intervene in funded litigation where funding arrangements are contrary to the public policy considerations upon which the previous prohibitions were based.

As providers of financial services and credit facilities, litigation funders are subject to the consumer provisions of the Australian Securities and Investments Commission Act 2001 (the ASIC Act), which contains protections against unfair contract terms, unconscionable conduct, and misleading and deceptive conduct. These provisions provide avenues for redress against unfair or false and misleading terms or omissions in funding agreements. Funders are also subject to the general regulatory requirements under the Corporations Regulations 2001 (Cth) (eg, conflict of interest controls: Reg 7.6.01AB) and the general law. Funders must maintain adequate practices to manage conflicts and follow written conflict management procedures. Under Reg 7.6.01AB(4), to comply with the “adequate practices” requirement, funders must:

• review their business operations to identify and assess potential conflicts;
• have written procedures for identifying and managing conflicts;
• implement those practices; and
• review the procedures at least every 12 months.

The Australia Securities and Investments Commission (ASIC) has issued a Regulatory Guide (RG248) providing guidance on how these regulations should be adhered to in practice.

Court oversight of litigation funders in specific contexts is discussed further in 1.6 Disclosure Requirement and 2.1 Adverse Costs.

The recent history of the regulation of litigation funding in Australia demonstrates the potential for the environment to shift depending on which political party forms the federal government in each three-year election cycle. It should be noted that the development of this regulatory environment has also occurred against the backdrop of several significant decisions of the appellate courts, as well as formal reviews of litigation funding, including by the Productivity Commission and the Australian Law Reform Commission, and a Federal Parliamentary Joint Committee on Corporations and Financial Services.

For instance, in a controversial 2009 decision in Brookfield Multiplex Funds Management Pty Ltd v International Litigation Funding Partners Pty Ltd (Multiplex) (2009) 180 FCR 11; [2009] FCAFC 147, the Federal Court found that litigation funding agreements and the lawyer’s retainer in a funded class action constituted managed investment schemes within the meaning of Section 9 of the Corporations Act. Multiplex was followed in 2012 by a second significant case in Chameleon Mining NL (Receivers and Managers Appointed) (Chameleon) (2012) 246 CLR 455; [2012] HCA 45, where the High Court of Australia concluded that the relevant funding agreement constituted a credit facility rather than a financial product and, while it did not need an Australian Financial Services Licence (AFSL), the funder did require an Australian credit licence. In response to Multiplex, the federal government intervened, announcing that it would protect funded class actions from too heavy a regulatory burden. In 2010, ASIC issued class orders granting transitional relief to the lawyers and litigation funders involved in funded class actions, exempting them from the managed investment regulatory obligations. ASIC subsequently granted transitional relief from the financial product regulatory requirements of the Corporations Act in response to the Chameleon decision.

However, in August 2020, those protections were significantly scaled back for a period via the introduction of regulations under a new coalition government. The stated effect of the 2020 regulations was twofold: to require third-party litigation funders to hold an AFSL, and to require funders to comply with the managed investment scheme regime under Chapter 5 of the Corporations Act. The 2020 regulations were a rejection of the recommendations of the Australian Law Reform Commission report “Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders” delivered to the Federal Attorney-General on 21 December 2018.

Then, in 2022, the Full Court of the Federal Court of Australia unanimously held in LCM Funding Pty Ltd v Stanwell Corporation Limited (Stanwell) [2022] FCAFC 103, that the decision in Multiplex was plainly wrong, and that a litigation funding scheme did not constitute a managed investment scheme. Following Stanwell, the federal government (again under the control of the returning Labor Party) clarified the regulatory position (aligning it with Stanwell) by introducing amendments to the Corporations Regulations, which commenced on 10 December 2022. Those regulatory amendments exempt litigation funding schemes from the managed investment scheme provisions of the Corporations Act, effectively bringing the arrangements for litigation funding schemes in line with the regime prior to 22 August 2020 and the law following Stanwell. At the time, ASIC also issued two legislative instruments, exempting litigation funding from the National Credit Code, AFSL requirements and other requirements.

More recently, in December 2025, ASIC again extended those litigation funding exemptions until 31 January 2029. Prior to the extension, the Association of Litigation Funders of Australia made submissions advocating for the continued need for regulatory certainty – in particular, that the exemptions be made permanent. It remains to be seen whether there will be further shifts in this space in the coming years, but for now it appears that the regulatory landscape is relatively certain.

For completeness, it should be noted that in the context of third-party litigation funding for corporate insolvency matters, company liquidators generally require approval under Section 477(2B) of the Corporations Act to enter into a litigation funding agreement if the provisions of the agreement are intended to operate for a period of three months or more. Approval can be obtained from a committee of inspection or from creditors or via application to the Federal Court or state Supreme Courts.

The Association of Litigation Funders of Australia (AALF) publishes Best Practice Guidelines, designed as non-mandatory standards of practice and behaviour to be observed by funders and managers of litigation financed by a funder. The Best Practice Guidelines traverse matters such as the content of litigation funding agreements, as well as broader aspects of the conduct of funders and managers in the course of advertising and marketing, in dealings with clients and in the litigation process. However, membership of AALF is voluntary, and several major third-party litigation funders operating in Australia have opted not to join AALF.

Aside from the provisions and guidelines referred to in 1.2 Rules and Regulations on Litigation Funding and 1.3 Non-Legal Rules, there may be instances where funding agreements are subject to other legislation addressing consumer protection, such as the Australian Consumer Law (ACL) and state-based unfair contracts legislation. The applicability of such laws would depend on various factors, including the nature of the parties and the subject matter of the disputes. Consumer-based statutory protections apply under the Competition and Consumer Act 2010 (Cth), via the ACL. Consumers can be individuals, companies, partnerships, trusts or sole traders and can qualify for the ACL statutory protections if the goods or services they acquire are for “ordinary personal, domestic or household use or consumption” with a value of up to AUD100,000.

Third-party litigation funding agreements in the class action context are routinely subject to judicial review and approval in the context of settlement approval applications in accordance with Section 33V of the Federal Court of Australia Act 1979 (Cth) and its state equivalents. Exercising broad supervisory judicial powers to approve, vary or cap the returns to litigation funders, Australian courts consider the interests of justice and group members in priority to any contractual obligations owed to a litigation funder.

In terms of lawyers, certain fee structures, principally contingency fee arrangements calculated by reference to the overall resolution sum (discussed in 3.1 Alternative Fee Structures), are generally prohibited in Australia (with a few exceptions). To the extent such contingent lawyer fee structures purport to form part of a funding agreement, they could be challenged. However, lawyers are permitted to conduct claims on a “no win, no fee” or speculative fee basis, so long as their fees are not charged on a percentage of the resolution sum. Such “no win, no fee” contingency arrangements are covered by the ASIC Corporations (Conditional Costs Schemes) Instrument 2025/809, providing relief against any requirements for MIS, AFSL and PDS compliance arising under the Corporations Act.

In the insolvency context, funding arrangements for liquidators are often subject to court approval under Section 477(2B) of the Corporations Act, where the arrangements are to be in place for a period of three months or more. Applications for Section 477(2B) approval may be rejected if they are found not to be in the best interests of creditors (see 1.6 Disclosure Requirement for a discussion of other aspects of a Section 477(2B) approval process).

Depending on the contracting parties, funding agreements may also be subject to various consumer protection laws, which typically focus on ensuring that consumers are not held to unfair or unconscionable contractual arrangements.

The Federal Court of Australia requires that the anticipated legal costs and any litigation funding charges are disclosed to current and potential clients in class actions, in clear terms, as soon as is possible. Broader disclosure to the court and other parties is also required in any class action, with confidentiality orders often made in respect of information that would confer a tactical advantage to another party. Similar requirements as to the disclosure of funding arrangements in class actions are in place in the Supreme Courts of New South Wales, Victoria, Queensland and Western Australia.

Outside the class action realm, there are few mandatory requirements for disclosure of the existence of funding agreements, with the following notable exceptions:

• Proceedings advanced in the corporate insolvency context – Section 477(2B) of the Corporations Act requires a liquidator to obtain the approval of the court or the committee of inspection or a resolution of creditors before entering into any agreement that has a term (or obligations which may be discharged) beyond three months. The approval process requires an assessment by the court that entry into the agreement is a proper exercise of power and not ill-advised or improper, rather than involving the exercise of commercial judgement. Again, confidentiality orders are typically made to redact information that would confer a tactical advantage to a prospective defendant, with hearings sometimes conducted in closed court.
• Family law proceedings generally require disclosure of the existence of litigation funding arrangements, as a part of each party’s ongoing duty of disclosure in respect of liabilities.
• Arbitration conducted under the Arbitration Rules of the Australian Centre for International Commercial Arbitration require disclosure of the existence and identity of the funder, but not the terms of the funding agreement itself.

In some jurisdictions (eg, the Supreme Court of Western Australia), there is also a requirement that a party to a civil proceeding notify the other parties and the court of the name of any non-parties holding an interest in the proceeding, such as a funder.

As discussed in 1.2 Rules and Regulations on Litigation Funding, the scope of reporting obligations imposed by the previous requirement for litigation funders to hold an AFSL and comply with Managed Investment Scheme rules was, for a time, broad and onerous. Some funders operating in the jurisdiction have continued to maintain AFSL credentials following the amendments to the Corporations Regulations in December 2022, which granted relief from such requirements. The decision to continue to maintain an AFSL largely depends on the vehicle by which a funder is conducting its business, and the source of funds deployed by the funder. For example, litigation funders that operate as publicly listed entities are of course subject to the financial and performance reporting obligations imposed by ASIC, the Corporations Act and the ASX Listing Rules.

Further to the discussion in 1.6 Disclosure Requirement, in the class action context, particularly where there is a contest about which firm and funder ought to be granted carriage over a proceeding, the court may consider the financial position of the funder (and/or the firm in the case of some class action proceedings run in the Victorian Supreme Court, as discussed in 3.1 Alternative Fee Structures).

The financial position of a funder may also become relevant in a security for costs application, particularly where the funder seeks to address the question of security for costs by way of undertaking or deed of indemnity. For further discussion, see 2.2 Security for Costs.

Portfolio funding arrangements are used by several funders in Australia, with private equity investment. Portfolio funds are typically structured with special purpose vehicles and are subject to the corporations law. The tax treatment of the proceeds from these arrangements can be complex and is highly dependent on how the proceeds and rights to the proceeds are structured.

Superior Australian courts generally have a discretionary power to order costs against a non-party, including a third-party funder. There is a well-established line of authority to the effect that where a party is impecunious or otherwise unable to satisfy the order, then a non-party with a sufficient interest in, or control over (including by way of financial contribution), such party may be liable to meet the costs order. The position in no-costs jurisdictions and private arbitrations is not always the same, although recent Federal Court authority suggests that there is scope for a costs order to be made against a third party with the no-costs jurisdiction just one of numerous factors to consider in the exercise of the court’s broad costs discretion.

In practice, it is routine for funding arrangements to include an indemnity in favour of the funded client providing protection from adverse costs ordered in the proceeding (as well as security for costs orders – see 2.2 Security for Costs). Such indemnities, particularly in larger cases, are often supported by an insurance policy (see the discussion in 2.3 Insurance).

Courts have shown an increasing willingness to make non-party costs orders against litigation funders, irrespective of the contractual terms agreed. More recent cases in this area, such as Davis v Wilson (Costs) [2025] FCA 666, Hardingham v RP Data Pty Limited (Third Party Costs) [2023] FCA 480 and Jin Lian Group Pty Ltd (in liquidation) v ACapital Finance Pty Ltd (No. 2) [2021] NSWSC 1202 demonstrate the court’s willingness to disregard the agreed contractual terms and funding arrangements in favour of scrutinising who ultimately stood to benefit from the litigation when considering the issue of costs.

Australian courts generally have the power to exercise broad discretion in making costs orders. As discussed above, this extends even to non-parties such as funders. Equally, the extent to which costs are paid, and the basis upon which the amount is calculated, is typically in the discretion of the court. There are of course key principles and rules which apply, and which vary by jurisdiction.

The starting position in Australian courts is that “costs follow the event”, which is premised on the expectation that a successful party will be awarded costs against the unsuccessful party. This is not an unqualified concept and may be displaced by a wide variety of factors (the most obvious being where a successful party is only awarded nominal damages). Underlying the general rule is the notion that costs should be allocated in a way that is fair and reflects the responsibility of each party for the incurring of costs. For example, the way in which the proceeding was conducted by each party will bear on the allocation of costs (and the basis of assessment), just as the ultimate outcome of the proceeding will. Factors such as the amount of damages awarded, whether the successful party has bettered an offer of compromise made earlier by the unsuccessful party, or whether the costs incurred in the proceeding have resulted from an excessive or disproportionate approach by a party will all be considered by the court. The ultimate allocation and assessment of the costs of a proceeding can be a complex and highly contested question – particularly where there is a long litigation history.

Australian courts will typically also provide direction as to the basis of assessment, with two main methods applied:

• “Ordinary” or “standard” basis (also known as “party-party”) where the fair and reasonable costs incurred by a party are payable and assessed or “taxed” in accordance with the relevant regime. This form of assessment typically results in 60–70% of the actual costs incurred by the successful party being paid; or
• In more exceptional circumstances, the “indemnity” or “solicitor-client” basis where most, if not all, costs are recovered (unless they were in an unreasonable amount or unreasonably incurred). Such orders are exceptional and will be considered by the court where a party has acted unreasonably (eg, pursuing a hopeless or baseless case), committed misconduct, abuse of process or acted in bad faith or otherwise failed to co-operate in the proceeding.

It should be noted that the basis of and the procedure for the assessment of costs can vary by jurisdiction, though the above broad considerations will apply.

Australian superior courts are empowered to make security for costs orders, the purpose of which is to ensure that defendants are not disadvantaged if a plaintiff lacks the resources to meet a costs order. The basic rule at common law (and sometimes reflected in court rules – eg, the NSW Uniform Civil Procedure Rules) is that a natural person who sues will not be ordered to give security for costs, merely because he or she is impecunious. The precise circumstances (as they are stated in the rules for each jurisdiction) in which a plaintiff is required to provide security for costs differs somewhat, but the same general threshold considerations arise:

• principally, whether there is reason to believe the plaintiff will be unable to pay the defendant’s costs if so ordered;
• whether there is reason to believe that the plaintiff has divested assets with the intention of avoiding an adverse costs order or other consequences of the proceeding;
• whether the plaintiff is suing for someone else’s benefit; and
• whether the plaintiff ordinarily resides outside of Australia.

A broad range of factors may guide the court in its exercise of discretion. These have been enumerated in case law on many occasions, and by way of example, many of them are neatly (though non-exhaustively) captured in Reg 42.21(1A) of the NSW Uniform Civil Procedure Rules:

• the prospects of success or merits of the proceedings;
• the genuineness of the proceedings;
• the impecuniosity of the plaintiff;

• whether the plaintiff’s impecuniosity is attributable to the defendant’s conduct;
• whether the plaintiff is effectively in the position of a defendant;
• whether an order for security for costs would stifle the proceedings;
• whether the proceedings involves a matter of public importance;
• whether there has been an admission or payment in court;
• whether delay by the plaintiff in commencing the proceedings has prejudiced the defendant;
• the costs of the proceedings;
• whether the security sought is proportionate to the importance and complexity of the subject matter in dispute;

• the timing of the application for security for costs;
• whether an order for costs made against the plaintiff would be enforceable within Australia; and
• the ease and convenience or otherwise of enforcing a New South Wales court judgment or order in the country of a non-resident plaintiff.

It is typical for funders operating in Australia to meet any security for costs ordered to be paid by the client, along with, or as part of, the adverse costs coverage they provide to clients. The costs of providing security, including the costs of obtaining an After-The-Event (ATE) policy, are typically borne by funded clients either indirectly in the sense that they incorporated in the funding commission, or directly in that they are recovered through a payment made to the funder of those costs in addition to the funding commission.

In practice, where a funder is involved, it is not uncommon for parties to agree a form of security to be provided – whether it is by way of payment of funds into court, or by another form of guarantee or undertaking (often supported by the ATE insurer or the funder itself). On occasion, disputes arise as to the adequacy and form of security proposed by some funders, including:

• In Domino’s Pizza Enterprises Limited v Precision Tracking Pty Ltd (No. 2) [2017] FCA 211, the funded party opposed a security for costs application on the basis there was an adverse costs insurance policy and proposed undertakings by Precision Tracking to notify the parties of any relevant change of funding circumstances. The Court ordered the payment of security, concluding Precision Tracking did not have the capacity to pay and the indemnity and the insurance did not address all main categories of potential costs. Additionally, the funder had absolute discretion to terminate its funding arrangements with Precision Tracking at any time, including the adverse costs indemnity and the adverse costs insurance.
• The adequacy of adverse costs insurance as a form of security was again tested in Petersen Superannuation Fund Pty Ltd v Bank of Queensland Ltd (Petersen) [2017] FCA 699 and Equititrust Limited v Tucker [2020] QSC 269. In the Petersen case, Justice Yates accepted that, depending on the circumstances, “an appropriately worded ATE policy might be capable of providing sufficient security for an opponent’s costs”, but on the facts of Petersen concluded that the specific policy offered was not sufficient, noting the beneficiary of the policy was the applicant, not the respondents. There were other potential difficulties, including numerous policy exclusions that might be relied on, and a lack of evidence about the procurement of the policy.
• More recently, in i-Prosperity Pty Ltd (in liquidation) v Crown Melbourne Ltd [2025] NSWSC 1525 (16 December 2025), the Court was asked to consider whether security could be provided by way of an “anti-avoidance endorsement indemnity” to an ATE policy in favour of the defendant. In an Australian first, Peden J concluded the natural and ordinary meaning of the particular ATE policy, including the anti-avoidance endorsement it contained, entitled the defendant to enforce it directly against the insurer and accordingly there was no real likelihood of circumstances arising which would enable the ATE policy to be readily, legitimately and contractually avoided, resulting in the ATE policy itself being adequate security.

ATE insurance has, until recently, primarily been utilised in Australia by funders of class action proceedings. In the last few years, the uptake of ATE insurance in commercial proceedings has increased, and more insurers have entered the market, with several prominent providers from the UK establishing operations in Australia. The market for this product remains relatively underutilised in Australia, although it is anticipated that competition will increase as the uptake broadens across commercial disputes in addition to class action proceedings.

For commercial disputes and litigation in Australia, standard hourly billing remains the predominant fee structure, with disclosure and fee estimate obligations requiring lawyers to inform their clients of the anticipated cost at the commencement of an engagement and as it develops. Depending on the nature of the engagement, there are a range of tailored fee structures (mostly still built around or measured by time-based billing) available to clients. The most common structures are the following.

Fixed and Capped

Typically used for transactional or low-complexity litigation work (such as debt collection), fixed-fee and capped offerings are increasingly becoming available for high-volume and low-complexity legal work but are rarely used for contested litigation on an unconditional basis.

Conditional (With or Without a Success Fee Component)

Colloquially referred to as “no win, no fee”, particularly in the personal injury, medical negligence and employment spaces, conditional cost structures make the payment of a portion of, or all, legal fees conditional on a successful outcome. The definition of success varies but is typically anchored to the resolution of the claims the subject of the engagement by the payment of something to the plaintiff by the defendant. In some arrangements, the client is liable to pay the legal fees at the conclusion of the engagement only where there is a “success”, but this is not always the case and in some arrangements the client is responsible for paying disbursements (such as counsel and expert fees), regardless of the outcome.

Conditional costs agreements commonly contain an uplift or “success fee”, which is capped by legislation at a maximum of 25% of the total legal costs on risk (excluding disbursements such as counsel and expert fees) (Section 182(2)(b) of the Legal Professional Uniform Law (LPUL)). Under the LPUL, lawyers must make disclosure of such an entitlement (including by way of estimates of the potential uplift amount), as well as explaining how the uplift is calculated and the potential factors that could affect the amount. In addition to the traditional use of “no win, no fee” fee structures for personal injury and similar high-volume practices, conditional fee arrangements are also often used in commercial, estates and family law matters where clients are unable to pay their costs upfront.

Contingency

Contingency fee structures are broadly similar to conditional fee structures except that the entitlement of the lawyers is connected to the monetary award or settlement typically via a set percentage (which is often tiered). In Australia, contingency fee structures are presently prohibited on the rationale that such an arrangement would introduce an unacceptable conflict of interest.

There is one exception to this prohibition: in 2020, damages-based contingency fees in class actions were introduced in the Supreme Court of Victoria, via a new Section 33ZDA of the Supreme Court Act 1986 (Vic). This provision allows for group costs orders (GCOs) to be made in class actions. GCOs can be made by the Supreme Court of Victoria where it is “appropriate or necessary to ensure that justice is done”. This regime was a first in Australia and (consistent with recommendations from academics, the Productivity Commission, Victorian Law Reform Commission and Australian Law Reform Commission) permits the court to make orders allowing a plaintiff law firm to charge its fees as a percentage of the amount recovered. Fundamental to the making of a GCO is that the plaintiff law firm must assume liability for adverse costs risks as a condition of the GCO and be prepared to satisfy any security for costs orders. Consequently, comparisons with “no win, no fee” contingency fee arrangements are not apt.

At an early stage in the proceeding, the Victorian Supreme Court will determine the percentage to be allocated to the plaintiff law firm that might be charged as a contingency should the matter successfully resolve. The court may revisit this percentage at a later stage (eg, when approval of a settlement is sought). Since the introduction of this regime, the median GCO rate was 24.5%, with a range of between 14% and 40%. Interestingly, this median closely compared to the 24% median rate for third-party litigation funding commissions, which had been considered by the Court during the seven-year period following the first common fund order made in October 2016 (see 3.2 Fee Sharing) up until 31 December 2023.

It should also be noted that in R&B Investments Pty Ltd (Trustee) v Blue Sky (Reserved Question) [2024] FCAFC 89, the Full Court of the Federal Court held that the Federal Court has the power under the Federal Court Act (Section 33V or 33Z) to make a common funder order (CFO) at the time of settlement or judgment in favour of a solicitor. The practical effect of such an order would be to allow a contingency fee. This decision was appealed to the High Court in Kain v R&B Investments Pty Ltd; Ernst & Young (a firm) v R&B Investments Pty Ltd; Shand v R&B Investments [2025] HCA 28. The High Court unanimously held that under Sections 33V and 33Z of the Federal Court of Australia Act 1976 (Cth), the Federal Court does have power to make a CFO at settlement or judgment in favour of a litigation funder. However, the High Court determined that the court has no power to make a Solicitors’ CFO. It reasoned that the Federal Court was exercising power against the background of a scheme of regulation of the legal profession in the state or territory in which the solicitors practised and concluded that the court could not make a Solicitors’ CFO if that would contravene any prohibition on contingency fee agreements imposed by relevant state or territory laws.

A general prohibition against fee sharing is found within Section 184 of the LPUL, prohibiting any person who is not an Australian legal practitioner (with very limited exceptions) from sharing legal costs.

That said, the flexible structures available to law practices in Australia allow for incorporated legal practices known as ILPs, as well as the more traditional sole practice and partnership structures. The availability of the incorporated legal practice (ILP) structure allows non-lawyer shareholders to have an interest in law firms. However, conflict management requirements imposed under the Corporations Regulations 2001 (Cth) effectively prohibit third-party litigation funders from holding any interest in a law firm where they seek to also provide litigation funding support directly to clients of that law firm.

One area where fee sharing between lawyers and funders is distinguishable is in the Victorian Supreme Court in respect of class actions. In Bogan v The Estate of Peter John Smedley (Deceased) [2022] VSC 201, a GCO was obtained in circumstances where the law firm conducting the class action was receiving funding support from a third-party litigation funder and had disclosed the law firm would be sharing 50% of any payment received at the conclusion of the proceeding with that third-party litigation funder. The Supreme Court of Victoria confirmed that so long as the plaintiff law firm is not a “mere front” for the litigation funder, such arrangements are a matter for the law firm and do not change the fundamental inquiry for the court in determining whether to make a GCO. This reasoning was not altered by the High Court in Bogan v Smedley [2025] HCA 7. The exception arises because the making of a GCO transforms the lawyer’s remuneration into an entitlement by way of order of the court, thus avoiding the general prohibition against fee sharing found within Section 184 of the LPUL, Consequently, the limited exception in Victoria under the GCO regime does not otherwise apply in Victoria or in other states or territories or federally, where the LPUL prohibits fee sharing.

On the funding contribution side, third-party funders and lawyers are not prohibited from sharing in the funding of legal fees. It is not uncommon for funding arrangements to include a component of deferred fees, such that the lawyers will not be paid a percentage of their fees until the resolution of the proceeding, and then only from the resolution sum. That component, essentially a conditional fee structure, can be subject to an uplift as discussed in 3.1 Alternative Fee Structures. Such an arrangement encourages the sharing of risk between the lawyers, the client and the funder.

Australian legal practices can be structured in numerous ways. The traditional ownership model is the sole practitioner or partnership model, whereby the owner(s) of the practice are also the legal practitioners.

Australia was a relatively early adopter of ILPs (as mentioned in 3.2 Fee Sharing) whereby the business is held in a shareholder structure and non-lawyers can hold equity and provide capital. There are several Australian ILPs that are, or have in the past, been listed on the Australian Stock Exchange.

The establishment of an ILP must be done in compliance with the legal professional legislation in the relevant jurisdiction and, for obvious reasons, at least one practising lawyer must be appointed as responsible for the management and delivery of legal services, and authorised under his or her practising certificate to supervise others. It is becoming increasingly common for alternative business structures to provide legal services alongside accounting, technology and consulting services. Strict rules are in place requiring clear disclosure about which personnel are providing legal services and which are not.

It is common for law firms to utilise traditional commercial loans and facilities to finance operating costs, as well as to purchase equipment and other assets. There is also a mature disbursement finance market in Australia catering for practices where client expenses (such as expert reports and court fees) are regularly incurred.

There are a range of professional rules that are directed at, or relate to, the conduct of a law firm in respect of lending. Many of these rules are directed at avoiding conflicts of interest – eg, lawyers are generally prohibited from borrowing money (or assist an associate in borrowing money) from a current client or from clients who have previously sought or obtained advice from the lawyer in respect of the investment of money.

More recently, third-party litigation funders have sought to expand their offerings from single-case funding to portfolio funding and law firm financing arrangements. Such arrangements are not usually publicly reported, but recent examples include Slater and Gordon’s GBP30 million credit/working capital facility obtained from Harbour Litigation Funding in December 2025. Notably, as law firm financing facilities, these arrangements do not contravene the prohibitions on fee sharing arrangements as they provide no right to legal fees or a percentage of recoveries in cases.

In Australia, recoveries received by litigation funders are generally treated as ordinary income for tax purposes. This classification arises because litigation funding is considered a commercial activity, and the amounts recovered represent revenue generated in the ordinary course of that business rather than the disposal of a capital asset. Accordingly, such amounts are typically included in assessable income and are not treated as capital gains.

While some guidance suggests that the provision of litigation funding may constitute an input-taxed financial supply for goods and service tax (GST) purposes, any specific GST characterisation should be approached with caution. The GST treatment does not alter the income tax characterisation of funders’ recoveries, but both income tax and GST outcomes may depend on the precise terms of the funding agreement and the funder’s business activities, so tailored advice should be sought.

In Australia, legal services are generally subject to GST. This means lawyers must add GST to their fees unless the service qualifies for an exemption. As a result, clients pay an additional 10% on top of the legal fees.

Although most legal services attract GST, certain services are exempt. For example, some pro bono work, services provided by community legal centres, and government-funded legal aid programmes are usually GST-free because no consideration is involved. Disbursements that meet the definition of a “taxable supply” and are paid by the law firm on behalf of the client are also subject to GST. However, some payments, such as court filing fees, are specifically excluded from GST.

Additionally, if the client is located outside Australia, legal services may be GST-free if they are effectively used or enjoyed outside the country. There are exceptions to this rule, so legal practitioners should seek tailored tax advice for their circumstances.

Regarding party-party costs and GST, the general principle is that a successful party (one who benefits from a costs order) can recover GST from the opposing party if the successful party is not registered for GST and therefore cannot claim GST back from the Australian Taxation Office as an input tax credit.

GST on an Input Tax Credit

A client of a law firm may claim a GST credit on legal fees if the following conditions are met:

• they hold an ABN and are registered for GST;
• the law firm is also registered for GST;
• the service is intended to be used wholly or partly for business purposes; and
• they have received a valid tax invoice from the law firm.

GST credit claims must be made within a four-year time limit.

When a claim is funded by a litigation funder, the law firm typically continues to issue invoices directly to the client. The client, rather than the funder, is considered the recipient of the legal services and is therefore entitled to claim the input tax credit. This applies even if the funder pays the invoices on the client’s behalf.

We do not anticipate that a withholding tax on any portion of returns paid to a funder acting out of a body corporate registered in Cayman, Delaware, Guernsey, Ireland, Jersey or Luxembourg would generally apply; however, individual litigation funders should obtain tailored tax advice to confirm the position for their specific arrangements.