Third party funding is the most far-reaching and innovative of the ways in which the risk of substantial losses due to funding litigation can be transferred elsewhere.

In third party funding, a party wholly unrelated to the dispute agrees to provide the funding for one of the litigants. Unlike No Win No Fee and ATE insurance, the lawyers' costs are usually paid as the case goes along, rather than being left until the end.

Third party funders are literally investing in the results of the litigation. If the litigant whom they are funding is successful, they will be paid a share in the award made by the court (or the sum agreed between the parties). However, if the case is lost, the funder will typically receive nothing. (Often the funder will have arranged its own ATE insurance, however.)

In third party funded litigation, the litigant is often well advised to take out its own ATE insurance against the possibility of facing a costs order in favour of the other side, if the case is lost.