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Third-Party Litigation Funding vs. Self-Funding

Updated: Oct 9, 2023

Legal battles are financially burdensome and emotionally taxing for individuals or entities, as they find themselves embroiled in legal disputes and often face a crucial decision regarding how to finance their litigation. In the modern era, these litigation costs are being covered either by self-funding or by a third-party funder.


Third-party litigation funding is a financial arrangement in the legal realm where a non-involved party, typically a specialised funding entity, provides financial support to a plaintiff or claimant in a legal dispute. In exchange for this support, the third-party funder usually receives a portion of the eventual settlement or judgment amount if the case is successful. This form of funding is particularly beneficial for individuals or businesses who lack the financial resources to pursue legal action on their own, as it helps cover legal costs, including attorney fees and court expenses, reducing the financial risks associated with litigation.


Third-party litigation funding has become an essential tool in promoting access to justice and a fair legal system, enabling meritorious claims to be pursued even when the high costs of legal proceedings might otherwise deter litigants.


Self-funding of litigation, also known as "paying for your own legal case," means that an individual or business covers all the costs associated with pursuing or defending a legal dispute using their own financial resources. This includes paying for lawyers' fees, court expenses, and any other related costs. Self-funding gives you control over your legal strategy and decisions but can be financially burdensome, especially in complex or lengthy cases. It's an option when you have the financial means to pay for the entire legal process independently without seeking external funding or assistance.


When confronted with a legal dispute, individuals and organisations often grapple with the choice between self-funding and third-party litigation funding. This decision carries significant implications, as it not only impacts the financial aspect but also influences the strategy and potential outcomes of the case. It is imperative to assess the circumstances and make an informed choice to maximise the chances of a favourable resolution.


Litigation funding comprises two separate strategies: third-party funding and self-funding. Both approaches come with their own set of advantages and drawbacks, necessitating thoughtful evaluation. In this article, the author seeks to elucidate the thought process that should go into a decision between self- or third-party litigation funding by delving into the benefits and preferences associated with each.

Situations Where Self-Funding Makes More Sense:

  1. Sufficient Financial Resources: Self-funding is a sensible choice when an individual or business has ample financial resources to cover all legal expenses without causing financial strain. This includes attorney fees, court costs, and any other related expenditures.

  2. Full Control and Strategy: Self-funding provides complete control over the legal case's strategy and decision-making process. This autonomy can be advantageous when a party has a strong understanding of their legal position and objectives and wishes to maintain control over the direction of the case.

  3. High-Stakes Personal Interests: When the outcome of a legal case has a significant impact on personal or business interests, self-funding may be preferred. This is especially relevant in cases where the party is not willing to share the potential rewards or control with a third-party funder.

  4. Limited Alternative Funding Options: In some situations, parties may not have access to third-party litigation funding due to the nature of their case or other constraints. In such cases, self-funding becomes the default and perhaps the only viable option for pursuing legal action.

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Advantages of Litigation Funding and Situations Where Third-Party Funding Makes More Sense:


1. Financial Risk Mitigation and Access to Justice: Litigation finance significantly enhances access to justice by providing financial support to individuals and businesses who might otherwise be unable to pursue legal action due to the high costs associated with litigation. It levels the playing field, ensuring that justice is not restricted to those with deep pockets.

2: Saving Operation Costs and Fees and Mitigating Risks: Third-party litigation funding comes at a cost, typically involving a portion of the settlement or judgment being paid to the funder. However, if the plaintiff loses the case, they are not obligated to pay any fees or costs to the third party. In contrast, self-funding allows plaintiffs to retain the entirety of any settlement or judgment but exposes them to the full cost of litigation if they do not prevail. Litigation can be inherently uncertain and expensive. Litigation finance mitigates financial risk for litigants.

3. Speed of Resolution: Third-party litigation funding can expedite the resolution of cases by providing prompt financial resources to cover legal expenses. This advantage is particularly significant in time-sensitive matters, such as business disputes or personal injury cases. Conversely, self-funding may result in a slower litigation process, as progress depends on the plaintiff's financial capabilities.

4. Balanced Decision-Making: When deciding between self-funding and third-party litigation funding, it is essential to assess financial resources, the strength of the case, and ethical considerations carefully. Ultimately, aligning the funding approach with the specific circumstances and goals of the dispute is pivotal in achieving the most favourable outcome while mitigating financial risks.

5. Optimal Resource Allocation: For businesses, litigation finance allows them to allocate their financial resources more strategically. Rather than tying up capital in protracted legal battles, they can deploy it for essential operational and growth purposes, maintaining financial stability.

6. Enhanced Negotiation Leverage: Knowing that they have robust financial backing, litigants can negotiate from a position of strength. This often leads to more favourable settlement offers from opponents, as they recognise the litigant's ability to see the case through to a successful conclusion.


These advantages underscore the transformative impact of litigation finance, making it an invaluable tool for individuals and businesses seeking to navigate the legal landscape with greater confidence and fairness.

CONCLUSION:


In conclusion, the choice between self-funding and litigation funding is a pivotal decision with far-reaching implications in legal disputes. Both approaches offer distinct advantages and considerations that require careful evaluation based on individual circumstances and objectives.


Self-funding, characterised by financial independence, places the litigant firmly in the driver's seat, allowing complete control over legal strategy and decisions. When financial resources are ample and a deep understanding of the case exists, self-funding can be a prudent choice. However, it demands a willingness to shoulder the full financial burden, which can be substantial and may limit the capacity to engage in protracted or complex litigation.


On the other hand, litigation funding, a relatively recent innovation, has emerged as a compelling alternative. It effectively levels the playing field by providing access to justice for those who lack the financial means to pursue their legal rights vigorously. By assuming the financial risks and burdens, third-party litigation funders enable litigants to focus on the merits of their case rather than financial constraints.


Moreover, litigation funding introduces a strategic partnership where the funder's expertise and resources enhance the likelihood of success. It fosters efficient dispute resolution, alleviates financial pressures, and can lead to favourable settlement outcomes. This approach not only extends access to justice but also ensures that meritorious claims are not compromised or abandoned due to financial considerations.

In navigating the complex terrain of legal disputes, the choice between self-funding and litigation funding is not merely a financial decision; it is a strategic one. Recognising the advantages and limitations of each approach is crucial. Whether driven by the desire for autonomy or the imperative of financial prudence, litigants now have the means to make informed choices, ensuring that justice remains both accessible and attainable. Ultimately, the decision between self-funding and litigation funding depends on one's unique circumstances, objectives, and vision for pursuing or defending legal claims in an ever-evolving legal landscape.


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