A firm advised by a former Conservative foreign secretary and a former chief prosecutor is funding a large-scale legal action in the English courts by a convicted Russian fraudster once banned from Britain.

The firm, 17 Arm, which is advised by Malcolm Rifkind, Ken Macdonald and other establishment figures, is financing the legal claim by Alexander Tugushev against a Russian billionaire in an expensive and lengthy court battle.

Tugushev was jailed for six years for fraud in Russia in 2007 after he was convicted of receiving an illicit payment while holding a government post. He disputes the conviction.

In the legal action in London, he alleges that his former business partner has cheated him out of his share of a substantial fishing empire. He is suing to recover the share, which he values at $350m. 17 Arm would be paid a slice of that sum – running to millions of pounds – if he wins.

The case throws a spotlight on a relatively novel and risky area of legal practice known as litigation funding. In such actions, a commercial firm backed by private investors pays the upfront cost of barristers and solicitors to fight a case for an individual who has a legal claim. If the individual wins, the commercial firm is rewarded with a cut of money won in court. If the individual loses, the firm gets nothing.

This winner-takes-all approach is funding a significant number of lawsuits in Britain. But critics such as the former justice minister Lord Faulks say it can mean that, for example, litigation is started to make a profit rather than to redress grievances.

In a statement, 17 Arm said: “Litigation funding is a common mechanism which empowers aggrieved people, who couldn’t otherwise afford to bring litigation, to fight their cases and win justice.”

Lord Clanwilliam, 17 Arm’s chairman, declined to respond when asked how much it would win if Tugushev were victorious in his legal claim. “We pride ourselves on discretion and do not discuss the specifics of our work,” he said.

The Eton-educated businessman described 17 Arm, which was set up three years ago, as being involved in litigation finance management as well as recovering and returning assets to their owners through investigative and legal means. It is based in Dubai and Jersey.

Its advisory board consists of Rifkind, a former foreign and defence secretary, Lord Macdonald, who was the director of public prosecutions between 2003 and 2008, Pauline Neville-Jones, a former security minister and chair of the joint intelligence committee, and another peer, Lord St John of Bletso.

The board gives advice on potential legal claims to see if, for example, they have a reasonable claim of winning.

Asked if the advisory board was giving credibility to a legal claim advanced by a convicted fraudster, the firm and its advisers said: “We believe in the right of every individual to have their case heard in a court of law.”

The firm added: “A disputed conviction in a jurisdiction notorious for corrupt and unfair trials is no bar to bringing an arguable and admissible case in London, where a just outcome can be expected. The English high court agreed that this case was properly brought here – and its ruling was so patently correct that the court of appeal has refused the defendants’ permission to appeal against it.”

The dispute, initiated by Tugushev in London’s civil courts two years ago, has yet to reach a full trial, although there have been preliminary hearings and other skirmishes.

A judge at one hearing described it as a “bitter battle” between two Russians that had generated a “depressingly vast amount” of legal paperwork. More than £5m has already been spent on teams of barristers and solicitors for both sides.

The legal fight is centred on Norebo Group, an international fishing business worth an estimated $1.5bn (£1.2bn). Based in Russia, it catches 400,000 tons of fish a year and sells to customers including Birds Eye, McDonald’s and Tesco.

Tugushev claims two former partners have dishonestly conspired to deny that he owns a third of the firm he helped set up in 1998.

Tugushev has told the English court that he was jailed after he and others were accused of receiving $3m for awarding a fishing quota while he was deputy chairman of an official Russian committee. He said the allegation was politically motivated and untrue.

He said that in 2013 he applied to travel to England to attend meetings at Norebo’s office in Maidenhead, Berkshire, but was refused “on the ground of my conviction”. 17 Arm said he held a UK visa and currently lived in London.

Vitaly Orlov, the Russian billionaire, and two other businessmen deny his claims, alleging that Tugushev is resorting to extortion.