Comparison
Self-Funding vs Litigation Funding
Who supplies the capital, who keeps the upside, who carries the downside.
Illustrative. A teaching shape, not pricing. Funding pays for the case and takes a share of the upside; insurance caps the downside for a premium. Many matters use both.
Should a claim be self-funded or externally funded?
A self-funded claimant supplies its own capital, retains the full upside and carries the full downside. An externally funded claimant conserves capital but shares proceeds. A third route — self-funding with insurance — retains more of the upside while transferring an agreed portion of the downside.
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Key points
- Self-funding retains the upside but exposes the balance sheet.
- Funding conserves cash at the cost of a share of proceeds.
- Self-funding plus insurance sits between the two.
- The right answer depends on cost of capital and risk appetite.
The three routes compared
Self-funding keeps the full upside but carries all the cost and risk.
Funding transfers cost and risk for a share of the upside. Self-funding with insurance keeps most of the upside while capping part of the downside.
Cost of capital
Self-funding uses the company's own capital, which has an opportunity cost.
Funding returns are higher because the risk is non-recourse. Insurance premiums are priced on the specific risk transferred.
Accounting and disclosure
Legal spend is usually expensed as incurred, while funded costs may sit off balance sheet.
Accounting treatment depends on the arrangements and applicable standards, so advice from auditors should be taken.
Illustrative scenario
On a £15m claim with £2m of costs: self-funding keeps all £15m if successful; funding might return £9m net after the funder's share; self-funding with ATE keeps £15m less a contingent premium, with adverse costs capped.
Figures are invented to show the mechanics. They describe no real client, matter or outcome.
Three ways to fund a claim
| Self-fund | Third-party funding | Self-fund + ATE | |
|---|---|---|---|
| You pay legal costs as the case runs | Yes | No | Yes |
| Adverse costs risk | Yours | Often covered by ATE in the package | Insured up to the limit |
| Share of recovery given up | None | Funder's return | Premium only |
| Best suited to | Strong balance sheets, high conviction | Cash-constrained claimants | Claimants who can fund costs but want the downside capped |
Frequently asked
Is it better to self-fund or use a funder?
Self-funding keeps the full upside but carries the cost and risk; funding transfers both for a share of the recovery. Many claimants self-fund and insure adverse costs as a middle route.
Does funding affect how the case is run?
Funding agreements typically leave control with the claimant and its lawyers but include reporting and consultation rights; the terms vary.
What does it cost to use a litigation funder?
A share of the recovery, commonly a multiple of the capital deployed or a percentage of damages, payable only on success.
Can I self-fund and still protect against losing?
Yes. ATE insurance caps adverse costs while you pay your own lawyers, so you keep most of the upside.
Is litigation funding tax-deductible or off balance sheet?
Accounting and tax treatment depend on the arrangements and applicable standards; take advice from your auditors and tax advisers.
General information only. This page is not legal, financial, investment or insurance advice. Any insurance is subject to underwriting and to the terms of the policy wording issued.