What Happens If You Lose a Lawsuit? The Litigation Funding Risk Model Explained

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Imagine this: You have a legal claim worth one million euros. Your lawyer believes you have a strong case. But then comes the question that stops everything.

What happens if we still lose?

This is not just a theoretical concern. In Germany, the loser pays principle applies. The losing party is responsible not only for its own legal costs, but also for the legal costs of the opposing party. This is set out in Section 91 of the German Code of Civil Procedure. There is no flexibility and no room for negotiation.

For a dispute with a value of €100,000, the financial consequences can be significant. Court fees calculated under the German Court Costs Act, your own legal fees under the German Lawyers’ Compensation Act, and the opposing party’s legal fees can easily amount to €13,000 to €15,000 for the first instance alone. If the case proceeds to the second instance, those costs can roughly double.

For many individuals and businesses, this is where the story ends. Not because the legal claim is weak, but because the financial risk of pursuing it is simply too high.

At a Glance

• With litigation funding, the funder assumes the entire financial risk of the case.
• If you lose, you do not repay anything.
• If you win, the proceeds are shared with the funder.
• The model only works if the case has a strong likelihood of success.
• That is why funders evaluate every case with great care.

1. What Is Litigation Cost Risk?

Before looking at litigation funding, it is worth understanding what is actually at stake.

Litigation cost risk consists of three main components:

Court fees (German Court Costs Act): For a dispute value of €100,000, court fees in the first instance are approximately €3,600. At a dispute value of €500,000, they already exceed €12,000. Court fees increase progressively as the value of the claim rises.

Your own legal fees (German Lawyers’ Compensation Act): The procedural fee and the hearing fee together amount to approximately 2.5 statutory fee units. For a dispute value of €100,000, this results in legal fees of around €4,800.

The opposing party’s legal fees: If you lose the case entirely, you are also required to pay the legal fees of the opposing party. These are generally in the same range as your own legal costs.

Total cost for the first instance with a dispute value of €100,000: Approximately €13,000 to €15,000, with costs increasing significantly as the dispute value grows. For a detailed breakdown and current fee tables, see our article How Much Does Litigation Cost? German Court and Legal Fee Tables 2026.

The result is that a significant number of legitimate legal claims in Germany are never brought before the courts. Not because the claims lack merit, but because the financial risk is simply too great.

2. How Does Litigation Funding Change the Risk Model?

The core idea can be summed up in a single sentence: A third party covers the costs of the lawsuit. In return, it receives a share of the proceeds if the case is successful.

The key principle behind this model is called non recourse. There is no right of recovery. If the case is lost, the litigation funder does not receive its investment back. There are no repayment obligations, no additional contributions, and no financial liability beyond the funder’s original investment.

For the claimant, this fundamentally changes the economics of litigation. You pay nothing upfront. You pay nothing if you lose. You only pay if you win, and the funder’s share comes directly from the proceeds of the successful claim rather than from your own pocket.

In many ways, litigation funding works like the reverse of an insurance policy. Insurance protects you against future losses. Litigation funding assumes the financial risk required to pursue compensation for a loss that has already occurred.

3. What Happens in Each Scenario?

There are not just two possible outcomes in litigation funding. There are four, and each one has a clear financial consequence.

Scenario 1: Complete Success

The court awards the full amount of the claim, and the defendant reimburses the litigation costs. Any portion of the litigation budget that was not used is returned to the sponsors on a proportional basis.

The proceeds of the successful claim are then distributed among all parties. Sponsors receive their share according to their funding participation, AEQUIFIN receives its success based fee, and the remaining amount is paid to the claimant.

Scenario 2: Partial Success or Settlement

This is the most common outcome in practice. Industry data shows that most civil disputes are resolved through a settlement rather than a final court judgment. As a result, the recovery is lower than the original claim.

In this situation, AEQUIFIN applies its Sponsor Protection mechanism. If the recovered amount falls below a predefined target value, the distribution shifts in favor of the sponsors. They receive a larger percentage of the proceeds than originally agreed.

This mechanism ensures that the platform does not benefit disproportionately from a modest outcome while sponsors have borne the financial risk.

Scenario 3: Complete Loss

There is no recovery, no settlement, and the case is lost entirely.

For sponsors, the financial risk is limited to the amount they invested. Any unused portion of the litigation budget is returned on a proportional basis. There is no obligation to contribute additional funds, and losses can never exceed the original investment.

For the claimant, the financial result is simple: nothing is owed. No legal costs were paid upfront, and nothing has to be repaid after an unsuccessful outcome. This is the practical effect of the non recourse principle.

Scenario 4: The Funding Round Is Not Completed

This scenario is unrelated to the outcome of the lawsuit. Instead, it concerns the funding process itself.

If the required litigation budget cannot be fully raised through the platform, the case is not funded.

In that situation, all committed sponsor funds are credited back in full to the respective sponsors’ limit accounts. The capital becomes immediately available for other funding opportunities. No party incurs a financial loss.

4. Who Bears the Risk in Litigation Funding?

Before the Lawsuit

Claimant: Pays €0.
Sponsors: Provide the litigation budget in proportion to their funding commitments.

If the Case Is Lost

Claimant: Pays €0.
Sponsors: Can lose no more than the amount they invested.

If the Case Is Successful

Claimant: Shares a portion of the recovered proceeds.
Sponsors: Receive their invested capital back, together with their share of the proceeds according to their funding participation.

This is not a complicated financial structure. It is simply risk allocation.

The claimant bears the time commitment and the emotional burden of litigation. The sponsors bear the financial risk of pursuing the case. If the claim succeeds, all parties share in the outcome.

5. What Does Litigation Funding Cost If You Win?

If your case is successful, the litigation funder does not work for free. Instead, the funder receives a pre agreed share of the net proceeds.

Across the industry, success fees typically range between 20% and 40%. At AEQUIFIN, the exact percentage is determined individually for each case based on factors such as the claim value, the legal risk assessment, and the expected duration of the proceedings.

At first glance, this may seem expensive. In some cases, it certainly is. The more important question, however, is not “How much do I give up?” but rather “What would I have recovered without litigation funding?”

If you have a claim worth €1 million that you would never have been able to pursue without external funding, receiving €700,000 after the agreed success fee is still significantly better than recovering nothing at all.

That is not a marketing argument. It is simple arithmetic.

6. What Are the Disadvantages of Litigation Funding?

So far, the model may sound almost too good to be true. The claimant carries no financial risk, sponsors benefit from a structured protection mechanism, and an independent trustee oversees the process.

So where is the catch?

There are disadvantages, and they are important enough to discuss openly.

Economic Disadvantages:

The success fee reduces the claimant’s net recovery. For example, if you pursue a claim worth €1 million, recover €750,000, and the agreed success fee is 30%, your final recovery is €525,000.

That is still a substantial amount, but it is not the full value of the original claim.

Litigation funding is also not suitable for low value claims. Most litigation funders require a minimum claim value of around €100,000, and many set the threshold considerably higher. Smaller claims are often rejected because the cost of evaluating and managing the case outweighs the potential return.

Not every case qualifies for funding. Litigation funders conduct their own independent assessment of the legal merits and likelihood of success. Claimants who are overly optimistic about their case may find that their application is declined.

This is not an arbitrary barrier. It is an essential quality filter that allows the litigation funding model to function.

Legal Considerations

The legal conduct of the case remains the responsibility of the claimant and their legal counsel.

At AEQUIFIN, sponsors have no influence over litigation strategy or legal decisions. This level of independence is not standard across the industry and is an important factor to consider when comparing litigation funding providers.

For a more detailed discussion of the potential risks from the perspective of both claimants and investors, see our article Litigation Funding and Its Risks.

7. Litigation Funding vs. Legal Expenses Insurance vs. Legal Aid

There are three primary ways to reduce the financial risk of litigation. Each works in a fundamentally different way.

Legal expenses insurance typically covers only specific areas of law and often includes waiting periods, deductibles, and coverage exclusions. It pays legal costs regardless of the outcome of the case. However, it frequently does not cover commercial disputes or business related litigation.

Legal aid is generally available only to individuals who can demonstrate financial hardship and whose case has a reasonable prospect of success, as required under Section 114 of the German Code of Civil Procedure. The state advances the legal costs but may require repayment if the recipient’s financial situation improves later. Legal aid is not available for businesses.

Litigation funding is neither an insurance product nor a form of public assistance. It is designed for claimants with commercially viable legal claims, regardless of their financial circumstances.

The key difference is simple: Legal aid is based on financial need. Litigation funding is based on the economic merits of the case.

8. How Does AEQUIFIN Protect Sponsors?

Transparency and independent fiduciary administration are the two core mechanisms that protect sponsors.

Before a case is listed on the platform, it undergoes an internal review. Only claims with a sufficient likelihood of success are approved for publication and made available for sponsorship.

Funds contributed by sponsors are not transferred directly to the claimant. Instead, they are held and administered by an independent trustee. The same applies to the distribution of proceeds if the case is successful. This structure helps safeguard sponsor funds even if the platform itself were to experience financial difficulties.

For every case, sponsors also receive access to a dedicated data room containing key information such as the case summary, litigation budget, funding structure, participation ratios, and supporting documentation.

There is no black box.

Key Sponsor Protection Measures

• Careful case selection: Only cases that pass AEQUIFIN’s internal legal and commercial review are published.
• Independent trustee: Sponsor funds and case proceeds are managed by an independent trustee rather than the platform or the claimant.
• Transparent documentation: Every case includes a secure data room with the relevant legal and financial information.
• Clear funding structure: Sponsors can review litigation costs, participation ratios, and expected distributions before deciding to invest.

9. When Do You Not Have to Pay Your Lawyer?

With litigation funding, the claimant does not pay their lawyer out of pocket if the case is unsuccessful. The legal costs are covered by the litigation budget provided by the sponsors.

Another option is a success based fee agreement under Section 4a of the German Lawyers’ Compensation Act. In certain circumstances, lawyers are permitted to agree on this type of fee arrangement. However, it is subject to strict legal requirements and does not replace comprehensive litigation cost coverage.

A third option is legal aid under Section 114 of the German Code of Civil Procedure, provided the claimant can demonstrate both financial hardship and a reasonable prospect of success.

Conclusion: The Risk Does Not Disappear. It Changes Who Bears It.

Litigation funding does not create a risk free legal system. Instead, it transfers the financial risk from the claimant to the litigation funder. The uncertainty before the lawsuit becomes a success based participation after the lawsuit.

If you lose, you pay nothing.
If you win, you share the proceeds.

That is the litigation funding model in two sentences.

Whether it is the right solution depends on the individual case, including the strength of the legal claim, the amount in dispute, and the financial position of the opposing party.

For a well founded claim worth more than €100,000 that would otherwise never be pursued, the financial equation is often straightforward.

To learn more about the eligibility criteria, read our article Which Cases Qualify for Litigation Funding?

For a complete overview of how the model works, see our Litigation Funding 2026 Guide.

If you already have a claim and would like to find out whether it qualifies for funding, submit your case to AEQUIFIN for an initial assessment.